Government Reaps Extra £103M* Per Year From Holidaymakers Via A Stealth Tax On Travel Insurance

The UK pays more tax on travel insurance than the rest of Europe

While the well-publicised increases to Air Passenger Duty (APD) will take effect from 1 April 2013, it is less widely known that the UK government is levying a stealth tax on travel insurance which may result in holidaymakers deciding to travel without travel insurance this year, says EssentialTravel.co.uk.

Every travel insurance premium includes insurance premium tax (IPT), adding 20% to the cost of the insurance. Travel businesses are forced to pass this cost directly on to consumers. Most insurance policies such as car insurance, are taxed, but at lower levels (typically 6% ); while other European countries typically pay a significantly smaller amount of IPT on travel insurance:

Country IPT Rate
Austria 11%
Belgium 0%
France 9%
Greece 10%
Sweden 0%

Travel insurance in the UK is subject to these higher rates for historical reasons which are no longer relevant. It was originally created to stop travel companies selling cheap package holidays but adding on expensive travel insurance policies (which weren’t at the time liable for tax). Now, as a result the government is collecting an extra £103m a year. Essential Travel argues that this higher rate should be removed from insurance policies, and promises it will pass on savings to the consumer if this happens.

The Foreign & Commonwealth Office (FCO) strongly recommends that all British holidaymakers purchase appropriate travel insurance. Essential Travel are concerned that the high level of IPT may prevent some holidaymakers from investing in protection while abroad.

“Excessive insurance charges caused by hidden taxes discourage holidaymakers from buying travel insurance, which flies in the face of policy advocated by the Foreign Office. These stealth taxes seem to demonstrate a government which is not joined up, and is happy to put its citizens at risk”, warns spokesperson, Stuart Bensusan of EssentialTravel.co.uk.

“The other fear is these taxes present an excuse for the government to fill a sizeable budget deficit. There is immense value derived to the UK economy from travel, and a more equitable tax regime needs to be established”, demands Bensusan.

“Continued taxation across the sector will inflict high prices to consumers and potential economic damage to the industry and the UK economy.”

Bensusan concludes: “It is hard to understand why the government would risk damaging such an important part of the economy in such unprecedented hard economic times. I would like to ask the government what they intend to do about this?”.

About Essential Travel

Established in 2001, Essential Travel is one of the UK's leading online travel essentials companies. Since 2002, we've protected over 5 million holidaymakers with our fully-comprehensive, competitively-priced travel insurance, as well as providing priority access to the most sought after car parks, hotels and lounges at all major airports across the UK.

Essential Travel is now part of Holiday Extras.