You might have never heard of Insurance Premium Tax (IPT) - but if you’ve got insurance, chances are you've paid it.
We explain what IPT is and how it affects the cost of your insurance.
What is Insurance Premium Tax?
Insurance Premium Tax (IPT) is a government tax on insurance policies which nearly every insurer has to charge. That includes:
When was Insurance Premium Tax introduced?
The government first introduced IPT in 1994 because they thought the insurance industry was under-taxed.
That’s because unlike other businesses, insurers don't need to charge VAT on the insurance they sell.
Standard vs higher rate IPT
There are two rates of IPT:
- Standard rate – 12%
- Higher rate – 20%
Car, van, pet and home insurance are all on the standard rate of IPT.
The higher rate applies to:
- travel insurance
- mechanical/electrical appliances insurance
- other motor insurance, including cover for vehicles used by people with disabilities
Is IPT VAT?
No, it’s not quite the same. The most common type of tax in the UK is VAT, but it doesn’t apply to insurance.
That’s why the government introduced IPT instead.
Anyone who buys an insurance policy will have IPT included in their quote price, but the tax is passed onto HMRC by the insurer.
Is any insurance exempt from IPT?
Yes, IPT doesn’t apply to these types of insurance:
- life insurance
- mortgage insurance
- commercial ships and aircraft
- international railway rolling stock
- lifeboats and lifeboat equipment
- goods in international transit
How does IPT affect the cost of insurance?
It’s worked out as a percentage of how much your insurance will cost, then it’s added.
For example, say your base price for your car insurance is £355. 20% of that is £71, so your total price would be £426.
Don’t worry – we do all these calculations behind the scenes. All you’ll see is the final price, which includes IPT.
There are lots of things that affect the cost of insurance, IPT is just one of them!
