The tax will apply to most general insurance where the insured risk is located in the UK.
The Chancellor's intention is to raise revenue through a broadening of the tax base to include a sector which is currently subject to little indirect tax.
IPT will apply to premium payments in respect of general insurance. It will not apply to long term insurance such as life insurance or pensions as much of this is essentially a form of investment.
Customs and Excise will discuss implementation and operation of the tax with the insurance industry. A document outlining the proposed tax is being issued today. It will focus on making the tax as simple and cheap as possible for the insurance industry to operate.
Tax will not apply to brokers' commission.
In addition to the exemption of all long term insurance there will be exemptions for general insurance of international air and sea transport and trade. These exemptions will include export credit guarantees, certain marine and aviation insurance, and insurance of international railway rolling stock, and of goods in international transit.
To prevent premiums being taxed twice, IPT will not apply to reinsurance.
Although IPT will not come into effect until 1 October 1994, anti-forestalling provisions will mean that it will not be possible to avoid paying tax by, for example, taking out several years' insurance at once or by paying in advance for policies commencing after the introduction of the tax.
A document outlining the proposed tax was issued yesterday. Copies of the paper and a preliminary compliance cost assessment are available from Mr M Young, HM Customs and Excise, 22 Upper Ground, London SE1 9PJ (Tel: 071 865 4791)
The tax is expected to yield revenue of £295 million in 1994-95, rising to £775 million in 1995-96 and £840 million in 1996-97.