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Paragraph 1 of Schedule 7A to the Finance Act 1994 exempts a contract if it is:

� a contract of reinsurance.

Purpose of the exemption

Reinsurance is a means by which insurers spread their risk. It is one of the ways they protect themselves against the possibility that a large claim might affect their financial stability. »Ê¹ÚÌåÓýappy do this by passing some of the premium they have received to a reinsurer, who then covers (or “reinsuresâ€�) some of the original insurer’s risk. It is also possible that a reinsurer may, in turn, seek to reinsure the “reinsuranceâ€� that they have written. This is known as retrocession. »Ê¹ÚÌåÓýappre would be double taxation if both the insurer and the reinsurer accounted for IPT on the premium and so, to prevent such double taxation, reinsurance is exempt from IPT.