Understanding the Insurance Premium Tax (IPT) in the UK
What Is Insurance Premium Tax?
Insurance Premium Tax (IPT) is a UK government tax applied to most general insurance premiums. Unlike VAT, it is built into the total price you pay rather than shown separately. Understanding IPT helps you make sense of your insurance costs.
Current IPT Rates
- Standard rate: 12 percent - applies to most general insurance including car, home, pet, and travel
- Higher rate: 20 percent - applies to electrical appliance insurance and some travel or vehicle insurance sold alongside the insured item
IPT is charged on the net premium. On a 200 pound net premium at the standard rate, IPT adds 24 pounds, making the gross premium 224 pounds.
Which Insurances Are Exempt?
- Life insurance and permanent health insurance
- Long-term care insurance
- Some reinsurance contracts
- Insurance for commercial ships and aircraft
History of IPT Increases
IPT was introduced in 1994 at just 2.5 percent. It rose steadily to the current 12 percent standard rate in 2017. Consumer groups including Which? have repeatedly called for IPT to be reduced, arguing it taxes people for being responsible and getting insured.
How IPT Affects Businesses
UK businesses pay IPT on most commercial insurance policies - unlike VAT, businesses cannot reclaim IPT as input tax. This genuinely increases the cost of being insured for businesses of all sizes. HMRC administers IPT and insurers collect and remit it.
