What is Insurance Premium Tax (IPT) and how does it affect your insurance cost?
Key takeaways
- Insurance Premium Tax (IPT) is a tax on general insurance policies in the UK, like car insurance, not on the claim payout.
- There are two rates of IPT: a standard rate for most general insurance (car, home, pet, etc.) and a higher rate for a few specific types (like travel policies sold with appliances).
- IPT is not the same as VAT and can't be reclaimed by most consumers.
- Some types of insurance, most notably life insurance, are exempt from the tax.
- You pay IPT automatically when you pay your premium—the insurer handles the payment to the government.
What is Insurance Premium Tax (IPT)?
Insurance Premium Tax is a government tax applied to most general insurance policies in the UK, like car insurance. It's charged on the price of your insurance premium, not on any claims you make.
Your insurer collects IPT when you pay for your policy and then passes it on to HM Revenue and Customs (HMRC). You don't pay it separately. It's included in the total price you see when you buy insurance.
What is the current rate of Insurance Premium Tax?
There are two main rates of Insurance Premium Tax in the UK. These are set by the government and confirmed by HMRC.
The standard rate is currently 12%1. This applies to most types of insurance, including car insurance, home insurance, pet insurance, travel insurance, and most commercial policies.
The higher rate is currently 20%1. This applies to a smaller number of insurance products, such as certain travel insurance policies sold alongside goods or services, warranties, and some add-on cover types.
These rates can change during government budgets, so it's always worth checking the latest HMRC guidance if you want the most up-to-date figure.
1Correct as of June 2026
How is Insurance Premium Tax calculated in your policy?
IPT is added as a percentage of your insurance premium. For example:
- Your car insurance policy costs £1,000
- The standard 12% rate means IPT adds £120 on top
- The total price is £1,120
This is why comparing insurance quotes is important. All providers include IPT in their pricing, so you're always comparing total costs rather than hidden extras.
"Insurance Premium Tax, or IPT, is a crucial but often overlooked factor when comparing policy prices. While it might seem like a small percentage (the standard rate is currently 12%), it applies to almost all general policies like car and home insurance. When you're comparing, remember that all quotes will include this tax, so you're always comparing like-for-like final prices. It's simply built into the total cost."
What types of insurance are affected by IPT?
Most everyday insurance policies include Insurance Premium Tax as part of the price. However, not all insurance is taxed in the same way. Some types of insurance are exempt from IPT altogether.
These exemptions include life insurance, reinsurance, and insurance covering risks located entirely outside the UK. Some marine, aviation, and transport insurance policies are also exempt depending on the structure of the cover. Health and medical insurance are also usually exempt in their basic form, such as many private medical insurance policies. However, some income protection or add-on health-related products may be treated differently depending on how they're structured.
Is Insurance Premium Tax the same as VAT?
No, insurance premium tax isn't the same as VAT (value added tax). It's a separate tax designed specifically for insurance products. Most people that buy insurance never interact with it directly, as it's built into the cost of your cover. VAT applies to most goods and services you buy, such as clothes, electronics, restaurant meals, and online subscriptions.
Most insurance policies are exempt from VAT, which is why IPT exists as a separate charge. It ensures insurance products are still taxed in a different way.
Some related services may include VAT, but the insurance premium itself is subject to IPT rather than VAT.
Can I claim back Insurance Premium Tax?
For most people, you can't claim back insurance premium tax. It's not like VAT and can't normally be reclaimed by individual consumers. The insurer pays IPT directly to HMRC on your behalf, as part of your premium.
If you cancel your insurance policy, you may receive a refund that includes the unused portion of IPT. This is because IPT is linked to the price you actually pay for cover.
For businesses, IPT is generally treated as a cost rather than a tax that can be reclaimed like VAT.
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