The determining factor is whether the pay-out goes directly to pay off the finance on the vehicle, or not.
Return to Invoice (RTI) / Non Finance GAP
This type of insurance product is not tied into any finance arrangements meaning that any compensation received in the event of a claim could be put to whatever uses the insured wished (i.e. it did not necessarily have to be used to pay off any outstanding finance).
From 1 April 2004, non-financial GAP insurance became liable to the higher rate of IPT when sold through suppliers of motor vehicles or persons connected to them.
Finance GAP
This type of insurance is directly tied to the finance arrangements and the contract will state that the policyholder must pay off any outstanding finance. These policies are subject to the standard rate of IPT.
“Regardless of what the policy is called, the key is identifying whether the GAP insurance relates to a financial agreement or to a motor vehicle. If there is no finance agreement in place, then premiums paid under the GAP policy will be subject to the higher rate.
Where there is a finance agreement, but the contract of insurance allows the policy holder flexibility with any pay-out, for example if they can decide to put half towards any outstanding loan and the other half towards the purchase of another vehicle, then all premiums receivable under the contract are liable to the higher rate. However, where a contract states that the policyholder must pay off any outstanding finance then the premiums are subject to the standard rate.”
How to change the IPT rate on Finance GAP in DragonDMS
From within the Vehicle Record click on the ‘Additional’ button and then on the ‘Finance / Warranty’ tab.
Click on the ‘Add IPT Warranty’ button in the bottom right-hand corner:
A ‘Vehicle Sales Warranty’ screen will then open. Enter the details of the policy, the ‘Product Type’ controls the rate of IPT that is applied.
Warranty Product – for warranty products with IPT at a higher rate.
RTI/Non Finance GAP – for those Return to Invoice or GAP insurance policies where the pay-out does not have to be used to settle the finance, which use higher rate IPT.
Finance GAP – If you are adding a Finance GAP product that meets all of the criteria for the standard rate of IPT.
The ? button next to the Product Type dropdown list will display the rules explaining when standard and higher Rate IPT should be applied.