There is a planned 1% rise in insurance premium tax (IPT) that will affect all health / medical insurance policies from 4 January next year.

The government has proposed raising IPT from 5 % to 6% from the next year and it expected that this will be confirmed in the forthcoming Finance Bill.  The insurance industry, however, is worried that this is just the start of hikes in the tax on insurances and that the government is moving towards a consistent level of taxation across all sectors of the economy.

Health and medical insurance has benefited from a low level of taxation, which has helped to keep it affordable.  Health insurance is a necessity for many people to ensure that they can get treated promptly and get back to work swiftly, without having to take a loss in earnings.  However  some would argue that it is a luxury item and be taxed as such.

There is currently discussion within the industry about how insurance providers will handle this uplift in IPT.  Will it affect holders of an existing policy?  Will they pay the increased IPT rate as from 4th January, creating an administration nightmare for insurance companies who would have to collect increased premiums from clients OR would the increased IPT rate only come into effect upon renewal after 4th January and on new policies from 4th January?

Additionally, with an increase in IPT on the cards, will this affect the decisions by employers to have a company health insurance scheme?  Will that extra 1% for corporates with significant numbers of employees mean the difference between scrapping the scheme or continuing it in these challenging times?