Insurance Premium Tax (IPT) is a tax you pay on certain general insurance policies every time you take one out or renew your cover.
The tax was first introduced in 1994, when it was initially set at 2.5%. In recent years, IPT has climbed rapidly – since 2005, the standard rate has doubled from 6% to the present rate of 12%. However, more than half of us aren’t aware of it, with a recent survey commissioned by the Association of British Insurers (ABI) revealing that only 44% of consumers know about it.
Here, we explain how Insurance Premium Tax works, which policies it is and isn’t charged on, and how to keep insurance costs down.
Which policies is Insurance Premium Tax payable on?
Insurance Premium Tax is charged on most types of insurance policies, but not all.
There’s a lower rate of 12% which applies to the following types of insurance:
- Most car insurance policies
- Household insurance
- Pet insurance
- Private medical insurance
There is also a higher rate of 20%, which applies to travel insurance and electrical appliance insurance.
The 20% rate also applies to some car insurance policies, for example, if you’re buying a new car and insurance through a dealership (check with the car dealer if you’re not sure whether the 20% rate is being charged).
Those types of insurance that don’t incur an Insurance Premium Tax charge include:
- Life insurance and permanent health insurance
- Mortgage insurance
- Cover for disabled drivers who lease their vehicles through the Motability scheme
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How is Insurance Premium Tax paid
Insurance Premium Tax is charged as a percentage of the premium paid, so if, for example, you take out an annual car insurance policy costing £200, Insurance Premium tax of £24 would be added to the premium cost (12% of £200).
Although the cost is usually borne by you, the policyholder, the tax is collected and paid to HMRC by the insurer, so it isn’t something you need to pay to HMRC yourself.
You might be able to save on your insurance costs by not staying loyal
Unfortunately, many insurance companies often don’t seem to grasp the concept of loyalty, and they normally increase the premiums once you’ve been with them for more than a year.
So, when your insurance is up for renewal, shop around by comparing policies. Don’t just go for the cheapest policy you find; make sure you’re getting the cover you need. If you’re happy with your insurer, you should go back to them and ask them to match the price you’ve found elsewhere. It doesn’t always work but it’s worth a try.
If your car insurance is coming up for renewal soon, you can compare car insurance quotes from over 110 UK providers using this car insurance comparison tool.
And if your current buildings and contents cover is soon up for renewal soon, you can compare quotes from over 50 UK providers and switch online using the following home insurance comparison tool.
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