In the Summer Budget, George Osborne announced an increase in Insurance Premium Tax (“IPT”). The rise is substantial – the current rate of 6% will increase to 9.5%. Whilst the Finance Bill 2015-16 is yet to be finalised (its progress can be tracked by clicking here), the current draft provides for changes to take effect from 1 November 2015. It is undoubtedly sensible for practitioners to give this attention as soon as possible as there are costly traps for the unwary, particularly in litigation where After the Event Legal Expenses Insurance (“ATE”) is common. That which follows is intended not as advice, but as a bite size overview of the transitional provisions in order to inform further consideration and reading. Discussing the changes with ATE providers and clients is an essential step.
In brief the transitional provisions will operate as follows: –
For clients who have incepted ATE Policies prior to 1 November 2015, practitioners should think about offering their clients the opportunity to pay that ATE premium now rather than wait until they have received damages from which to source funds. If the client chooses to wait they will have to pay the additional 3.5% IPT. If they were not afforded the opportunity to pay whilst the rate is 6%, not only will the client lose more of their damages, but they may have good cause for complaint.
These changes are significant and the transitional provisions varied. Failing to properly advise a client on the impact of the change could result in a significant increase in liability. Practitioners must consider these changes immediately and take appropriate legal/tax advice as necessary.
28 October 2015
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