Insurance Premium Tax will rise by more than half on November 1 2015

On the 1st November 2015 the Insurance Premium Tax (IPT) increases, with the standard rate rising by more than half from 6% to 9.5%.

It is estimated that around 7.3 million car policies, 4.7 million household policies, 3 million pet policies, and 3 million private medical insurance policies will all be affected by the change that was announced by the Chancellor in the 2015 summer budget.

The IPT is paid each time an insurance policy is purchased in the UK, and the changes will affect policies with a start date after 31 October.

This is likely to add the following to premiums:

• Nearly £13 to the average comprehensive motor insurance policy
• More than £10 to the average combined building and contents cover
• More than £10 to average pet insurance
• More than £40 to average private medical insurance

Not all insurance products will be affected by the new rates though, as the government exempts the following from IPT:

• Life insurance
• Mortgage insurance
• Reinsurance
• Block insurance held by Motability which covers all disabled drivers who lease their cars and motor cycles through the scheme
• Commercial goods in international transit
• Commercial ships and aircraft
• International railway rolling stock
• Lifeboats and lifeboat equipment
• Goods in international transit

Gap insurance through dealerships and warranties for some mechanical and electrical goods policies,  which are already higher rate at 20%, will remain unchanged.

Insurance Premium Tax was introduced by the government in 1994, beginning at a standard rate of 2.5%. That rose to 4% in 1997, and again to 5% in 1999. That rate stood for 12 years, before increasing to 6% in 2011.

The decision to increase the IPT will see an extra £8.1 billion brought in for the Treasury by 2021, the second largest revenue raiser in this year's summer budget.

Those with an insurance policy that is due for renewal within the first 12 days of November are advised to switch on October 31 before the rise comes into force. But remember that exit fees and the cost of the remainder of the policy could be expensive, especially when on top of potentially losing a full year's no claim bonus.

Another tip is not to accept your insurer's renewal offer first time round, as you may find a better deal if you shop around. Only pay for as much cover as you need, and paying it all up front can be easier than monthly payments.