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insurance premium tax

Saarrah Mussa
Written by  Saarrah Mussa
5 min read
Updated: 08 Mar 2024

What is Insurance Premium Tax (IPT)? 

Insurance Premium Tax (IPT) is a tax applied to most insurance premiums in the UK, not just car insurance. This includes home insurance, life insurance, and many other types of insurance policies. It's important to be aware of IPT, as it can contribute to the overall cost of your insurance. You can find more information about IPT rates and specific exemptions on the UK government website

tax

How much are IPT rates? 

There are two main IPT rates: 

  • Standard rate: This is 12% and applies to most insurance products, including most car insurance policies. 

  • Higher rate: This is 20% and is applied to premiums paid for new cars bought from dealerships when the car insurance is included as part of the purchase package. This is why it's often cheaper to obtain car insurance separately instead of bundled with the car purchase. 

Are there any exemptions from IPT? 

While IPT applies to most insurance products, there are some exemptions, including: 

  • Certain types of motor insurance: This includes learner driver insurance, motor trade insurance, and some types of classic car insurance. 

  • Life insurance: Premiums paid towards most life insurance policies are exempt from IPT. 

  • Some types of health insurance: Private medical insurance (PMI) is also typically exempt from IPT. 

Does IPT affect the price of car insurance? 

IPT is a tax levied against insurance companies, but these costs are often passed on to customers in the form of higher premiums. For example, if your car insurance premium is £500 before IPT, the standard rate of 12% would add an additional £60 to your premium, bringing the total cost to £560. 

Should I worry about IPT? 

It's important to be aware of IPT as it contributes to the overall cost of your insurance, but you don't have to pay it directly. You can potentially save money on your car insurance by: 

  • Shopping around and comparing quotes  from different insurers: 

  • Maintaining a good driving record to qualify for lower premiums. 

  • Considering alternative car insurance options such as telematics insurance or black box insurance, which can be cheaper for low-mileage drivers. 

Additionally, you might want to consider researching car tax (also known as road tax) to understand the different rates and how they can impact your overall car ownership costs.