Part of the cost of insurance is made up of a tax known as Insurance Premium Tax. For the vast majority of insurance policies arranged within the U.K the present rate applicable is 5.0% although in certain instances (such as travel insurance) the rate is 17.5%. The 5.0% rate within the United Kingdom is low compared with other European states.
Insurance Premium Tax within the United Kingdom presently raises £2.3bn, the majority of which comes from the lower 5% rate rather than the higher 17.5% rate. On these figures it would only take a 2.5% increase in the lower rate to raise an additional £1bn for the chancellor. With the present economic situation and the warning of tax rises and spending cuts speculation is rising that Insurance Premium Tax will be increased in the coming Emergency Budget. Observers see that Insurance Premium Tax is an easy target for an increase as many customers are not aware that they are paying tax within their insurance premium. Also Insurance Premium Tax can be raised with little or no notice. However, the downside to an increase in Insurance Premium Tax is that this will be passed on in full too the consumer which will increase insurance premiums at a time that the industry is already raising prices. The Insurance Industry knows only to well that if premiums rise then the number of individuals purchasing insurance reduces. Our advice at Trade Direct Insurance is that you should not purchase your insurance solely on price rather you should always consider the scope of the cover you are purchasing as well as the financial strength of the underwriter. With premiums rising it is a natural reaction to shop around but always remember that cheapest is not always the best.
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