Insurance premium tax (IPT)

The 2009 Pre-Budget Report (PBR) introduced a measure to apply IPT to “arrangement fees” charged by insurance intermediaries to private individuals by means of a separate contract in addition to the insurance premium. The measure had immediate effect with no prior warning and applied to all such payments received on or after 9 December 2009 with legislation to be introduced in the Finance Bill 2010.

Industry representatives felt the measure was too far reaching in its impact and unreasonable in its immediate effect. Following negotiation, the draft legislation has been amended to restrict the application of the measure and supersedes the PBR announcement.

IPT will now only apply to such arrangements where:

• the insured is a private individual and the insurance is not in respect of the individual's business;
• the arrangement is a condition of the insurance contract, or the insured would be unlikely to enter into the contract without it;
• the insured cannot influence the terms and price of the arrangement with the intermediary; and
• the price of the insurance contract charged to the insured is not contingent on an assessment of the insured's individual circumstances that might affect the level of risk.

The primary factors for IPT to be charged are that there is no risk assessment of the insurance contract and the insured cannot negotiate the terms of the intermediaries “arrangement” contract.

The new measure will apply to payments received on or after 24 March 2010 and it is the insurers' responsibility to account for IPT due.

HMRC reiterates that the anti-avoidance measure does not apply to businesses buying insurance but the legislation contains powers to include such transactions by way of secondary legislation if there is any perceived abuse.