Commentary

V18.103 Exemptions from the tax

Part V18 Insurance Premium Tax

V18.103 Exemptions from the tax

V18.103 Exemptions from the tax

An insurance contract is a taxable insurance contract unless it is specifically exempted from tax1.

The following contracts of insurance are exempt:

  1.  

    (1)     Contracts of reinsurance2.

  2.  

    (2)     Contracts of long-term business as defined in the Financial Services and Markets Act 20003 (Consequential Amendments and Repeals) Order 2001, s 346(3). Included as long-term business is Permanent Health Insurance (PHI), but excepted (since 1 October 19974) from the exemption is non-long-term medical insurance (which is taxable). Confusion often arises as PHI (exempt from IPT) has a similar definition as Accident and Sickness Insurances (and are taxable).

  3.  

    Medical insurance (accident and sickness insurance) is defined5 as cover for private medical, dental, optical and related treatment. This needs to be distinguished from long-term PHI cover. Both are frequently referred to simply as health insurance. For a contract of insurance to be exempt PHI is should have the following characteristics:

  4.  
    1.  

      •     Provision for incapacity.

    2.  

      •     For a period

    3.  
      1.  

        –     of not less than five years (if renewable), or

      2.  

        –     until normal retirement age of the policy holder, or

      3.  

        –     of cover without time limit

    4.  

      •     The policy will usually specify that:

    5.  
      1.  

        –     the insurer cannot terminate the contract, or

      2.  

        –     termination is only possible in the special conditions as mentioned in the contract

    6.  

      •     A period of deferral is usual stimulated (for example 13 weeks, or six months, before any benefit is paid). Claims usually require that the insured is unable to follow any occupation following the illness

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