Insurance premium tax rises by 0.5 per cent

Insurance premium tax is the amount insurers are taxed, which they then pass on to consumers.

In July 2015, Mr Osborne announced an increase in the tax - from 6 per cent to 9.5 per cent, which took effect in January.

Among other things, insurance premium tax is charged on medical insurance.

Mr Osborne’s last increase took effect in November.

There had been speculation ahead of the Budget of an increase of up to 12.5 per cent, meaning this is a smaller blow than might have been expected but the increase will directly affect the cost of insurance.

But insurance premiums have been falling after a crackdown on so-called “ambulance chasers” and personal injury claims.

IPT is a tax on prudence. It’s gone from zero to 10 per cent in time. Scott Gallacher

The chancellor said all extra money raised would be committed to flood defence spending.

Genevieve Moore, partner at Blick Rothenberg LLP, said: “The 0.5 per cent increase in IPT is a real blow.

“After the increase to IPT last year from 6 per cent to 9.5 per cent, this additional 0.5 per cent takes the tax to 10 per cent. I

“Hoped that the chancellor would have left this tax alone in this Budget but at least it is not the 3 per cent increase that was rumoured.”

“The increase in IPT is a tax that will hit almost everyone, as in most cases having insurance is a necessity, not a luxury and something which most people will have to continue to buy.”

Scott Gallacher, IFA at Rowley Turton, said: “On the one hand it is not ideal as it is a tax on prudence. It is a bit of an unfair tax. That said, an extra 0.5 per cent is not huge in the grand scheme of things.

“I remember when there was no insurance premium tax. It has gone from zero to 10 per cent in time. It is a stealth tax and not something that everyone thinks about, so not ideal in that regard.”