Insurance Premium Tax: identifying where the risk is situated
Updated 27 October 2021
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Who is likely to be affected
Insurance companies who are liable to pay UK Insurance Premium Tax (IPT), and their intermediaries, are likely to be affected.
General description of the measure
This measure relocates the criteria for determining a location of risk for IPT by reference to regulations made under the Financial Services and Markets Act 2000 to IPT legislation.
This measure does not substantively amend the location of risk criteria, it simply relocates criteria to the same effect into the IPT legislation to ensure clarity and continuity of treatment.
Policy objective
This measure is intended to ensure clarity and continuity by relocating the criteria for determining the location of risk for IPT into IPT legislation. This will ensure that risks located outside the UK remain exempt from UK IPT.
Background to the measure
The regulations used to establish the location of an insurance risk for IPT purposes were replaced in 2009 and the new regulations did not include an equivalent provision. Instead, reliance was placed on directly effective EU legislation.
In order to ensure clarity for the insurance industry, this measure relocates the criteria into primary legislation. This measure has not been consulted on as it does not alter the tax treatment of any policy and requires no action from customers, it simply moves the location of risk criteria to a new legislative footing.
Detailed proposal
Operative date
The measure will have effect on and after the date of Royal Assent to Finance Bill 2021-22.
Current law
The current law is set out in Schedule 7A to the Finance Act 1994.
Paragraph 8 of Schedule 7A specifies that the question of whether a risk is situated in the United Kingdom shall be determined in accordance with regulations made under section 424(3) of the Financial Services and Markets Act 2000.
The relevant regulations made under that Act are:
- in respect of contracts entered into before 17 December 2009, the Financial Services and Markets Act 2000 (Law Applicable to Contracts of Insurance) Regulations 2001
- in respect of contracts entered into after that date, the Financial Services and Markets Act 2000 (Law Applicable to Contracts of Insurance Regulations 2009, which dealt with the applicability of EU Regulation “Rome I” (Regulation (EC) No 593/2009 of the European Parliament and of the Council of 17 June 2008 on the law applicable to contractual obligations
Proposed revisions
This measure will amend paragraph 8(2) of Schedule 7A to the Finance Act 1994 to remove reference to regulations made under the Financial Services and Markets Act 2000 and add a reference to a new paragraph 8(3).
The new paragraph 8(3) introduces criteria to the same effect as those currently contained within regulation 2(2) of the Financial Services and Markets Act 2000 (Law Applicable to Contracts of Insurance) Regulations 2001.
Summary of impacts
Exchequer impact (£million)
| 2021 to 2022 | 2022 to 2023 | 2023 to 2024 | 2024 to 2025 | 2025 to 2026 | 2026 to 2027 |
|---|---|---|---|---|---|
| nil | nil | nil | nil | nil | nil |
This measure is not expected to have an Exchequer impact.
Economic impact
This measure is not expected to have any significant economic impacts.
The terms used in this section are defined in line with the Office for Budget Responsibility’s indirect effects process. This will apply where, for example, a measure affects inflation or growth. You can request further details regarding this measure at the email address listed below.
Impact on individuals, households and families
This measure is not expected to have an impact on individuals as it only affects insurance companies or other businesses. This measure is not expected to impact on family formation, stability or breakdown.
Equalities impacts
This measure amends the location of legislation without altering its effect and is therefore not expected to have any equalities impacts.
Impact on business including civil society organisations
This measure is expected to have a negligible impact on insurance companies or other businesses by changing the location of existing legislation. One-off costs will include familiarisation with the change. There are not expected to be any continuing costs. Customer experience is expected to remain broadly the same as there is no change to how insurance companies currently operate. There is not expected to be any impact on civil society organisations.
Operational impact (£million) (HMRC or other)
This measure amends the location of legislation without altering its effect and is therefore not expected to have an operational impact on HMRC.
Other impacts
Other impacts have been considered and none has been identified.
Monitoring and evaluation
The measure will be kept under review through communication with affected taxpayer groups.
Further advice
If you have any questions about this change, contact Russell Langford-Smith, Deductions and Financial Services, on Telephone: 03000 566499 or email: russell.langford-smith@hmrc.gov.uk.