What is Insurance Premium Tax (IPT)?
Key takeaways
Most ordinary UK car insurance is charged at the standard 12% Insurance Premium Tax rate, which is usually included in the price you pay
Insurance is not subject to VAT, so IPT is a separate tax that insurers account for when you buy a taxable policy
You can't opt out of IPT on taxable car insurance, but lowering your premium also reduces the amount of IPT you pay
What is Insurance Premium Tax (IPT)?
Insurance Premium Tax (IPT) is a UK tax charged on most general insurance premiums, including car, homeand pet insurance. You don't pay IPT separately to HMRC - instead your insurer accounts for the tax, and it's usually already included in the price you pay for your insurance. Insurance itself isn't subject to VAT.
How much IPT do I pay on car insurance?
Most ordinary car insurance is charged at the standard IPT rate of 12%. There is also a higher 20% rate, but it won't apply just because you bought your insurance from a car dealer. Here's how it usually works:
IPT rate | Where it generally applies |
|---|---|
12% standard rate | Most general insurance, including ordinary car, home and pet insurance |
20% higher rate | Travel insurance and certain insurance connected with vehicles, including hire vehicles, or household appliances. This includes gas central heating but not mobile phones |
Exempt | Certain long-term insurance including life insurance and income protection insurance |
Standard motor insurance sold by a motor dealer isn't automatically subject to the 20% rate, but the higher rate can apply to some supplier-connected vehicle insurance. This can include certain mechanical breakdown or roadside assistance cover, and motor insurance arranged by car hire or rental businesses.
📣 Did you know? IPT raised £9.037 million[1] in 2025/26
HMRC collected £9.037 million[1] from Insurance Premium Tax across all types of insurance in the 2025/26 financial year, 1.7% more than the previous year. The standard IPT rate itself has remained at 12% since June 2017.
How do I calculate IPT on my car insurance?
At the standard rate, IPT adds 12% to the taxable premium before tax - so if an insurer calculates a £500 premium before IPT, £60 of tax would be added and the total would be £560.
Premium before IPT | 12% IPT | Total including IPT |
|---|---|---|
£300 | £36 | £336 |
£500 | £60 | £560 |
£750 | £90 | £840 |
£1,000 | £120 | £1,120 |
If the £500 price you see already includes the 12% IPT, then the premium before tax is about £446.43, with around £53.57 of IPT included in the £500 total.
Is IPT included in my car insurance quote?
Usually, yes - IPT is normally included in the price you pay for insurance, so you generally won't need to add another 12% to the quote shown on screen. Insurers also aren't required to show IPT as a separate line on your documents, so you might just see one overall premium.
Which insurance is exempt from IPT?
Some insurance is exempt from IPT, including life insurance, income protection and certain other long-term insurance. Other exemptions cover specific commercial and international circumstances, such as some commercial ships, aircraft and goods in international transit.
📣 Did you know? From 1 July 2026, insurance for most new vehicle leases through qualifying schemes for disabled people is subject to the standard 12% rate. The exemption remains for qualifying vehicles designed or substantially and permanently adapted for wheelchair or stretcher users.
Leases beginning before 1 July 2026 remain exempt for the duration of the lease.
Can I avoid or reclaim IPT?
You can't opt out of IPT if it applies to your insurance policy, and you can't reclaim it in the way a VAT-registered business can reclaim VAT. However, because IPT is calculated from the taxable premium, reducing the price of your insurance will also reduce the amount of tax included in that price.
Comparing car insurance quotes and checking ways to get cheaper car insurance can therefore lower your overall cost, even though the 12% tax rate itself stays the same.
Frequently asked questions
Is Insurance Premium Tax the same as VAT?
No, insurance is not subject to VAT in the UK - instead, most general insurance is subject to Insurance Premium Tax, usually at either 12% or 20%.
Do electric cars pay Insurance Premium Tax?
Yes, there is no general IPT exemption for electric cars, so ordinary electric car insurance is normally subject to the same standard 12% rate as insurance for petrol, diesel or hybrid cars.
Do I pay IPT if I pay for car insurance monthly?
Yes, paying monthly does not remove IPT from the taxable insurance premium, but monthly payments can also include interest or other credit charges. According to HMRC, a genuine credit charge made under a separate credit contract may not form part of the premium for IPT purposes.
When was Insurance Premium Tax introduced?
IPT was introduced at 2.5% in October 1994. The standard rate rose to 4% in 1997, 5% in 1999, 6% in 2011, 9.5% in 2015, 10% in 2016 and finally 12% in June 2017. It has remained at 12% since then.
Author
Mehdi Punjwani
Insurance specialist
Mehdi is a financial writer and editor with over six years of experience in personal finance. He has written for organisations and publications including Equifax, The AA, and USAToday, covering a...
Reviewer
Beth Leslie
Senior Insurance Content Editor
Beth is an experienced writer and editor who specialises in financial and economic content. She is currently the Senior Insurance Content Editor for MoneySuperMarket. Beth is passionate about making...
