THE Office of Fair Trading has warned residents to check if they should be paying insurance premium tax.

Insurance premium tax (IPT) is a tax on the premium you pay for most general insurance policies where the risk is located in the UK.

It applies to general insurance policies including motor, household, medical (including long-term cover), income replacement, travel and other protection cover.

There are two rates of IPT – a standard rate of 6 percent and a higher rate of 20 percent.

The higher rate applies to amongst other things, all travel insurance and also to insurance policies purchased as add-ons to other products. For example on an extended warranty when you buy a television, you will pay IPT at the higher rate.

However this tax is not chargeable where the policy holder is habitually resident in the Isle of Man or the risk being insured against is in the Isle of Man.

The Office has warned that some UK insurance companies who are supplying cover to Island residents charge for this tax so is advising residents to be vigilant.

Advice centre manager Andrea Tabb said it was important to confirm with UK insurance companies, brokers, electrical retailers or travel companies, that the tax will not be charged.

She said: "It will come as a surprise to most people that they may be paying this tax. It may be that companies do not realise that the tax is not chargeable to Isle of Man residents. Always check before handing over your money.

"You will find more information on the HM Revenue and Customs website www.hmrc.gov.uk or by calling its helpline on 0845 0109000 for further advice."

Life insurance policies and long-term plans with an investment element do not attract IPT.