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Member, Beacon International Group, Ltd.
LONDON—The tax paid on insurance purchased for risks in the United Kingdom will increase from its current 5% to 6% effective Jan. 4, 2011, U.K. Chancellor George Osborne said Tuesday.
Mr. Osborne announced the one percentage point increase in the tax on insurance premiums as part of an emergency budget he announced to deal with the U.K. government's approximately $1.3 trillion debt.
The 6% tax would apply to most commercial insurance premiums. In addition, the government plan would increase the tax on coverage, such as travel insurance and car insurance bought through third parties that supply other goods and services, to 20% from the current 17.5%.
The U.K Treasury said it hopes to raise about £500 million ($741.2 million) a year during the next five years from the increased insurance premium tax.
A spokesman for Lloyd's of London said increasing the insurance premium tax rate may affect the amount of insurance purchased, but it will not have a huge impact on insurers. “Also, as it is charged on the location of the risk, any rate change will not affect Lloyd's solely or harm our competitiveness against other global insurers,” the spokesman said.
The London-based British Insurance Brokers' Assn. said the tax increase may discourage businesses from buying sufficient insurance protection.
“This is a tax on protection. BIBA's research last year demonstrated that businesses and consumers were reducing insurance cover as a result of the recession and we are concerned that increases to insurance premiums as a result of insurance premium tax could lead to even further underinsurance,” BIBA CEO Eric Galbriath said in a statement.