Tax is never a fun word. In this guide, we're talking specifically about insurance premium tax. This is a tax on your insurance premium which is set by the government.
Yeah we know, it's still not that fun. But, it's important to know about insurance premium tax and how it affects your premium.
Take a look at our guide which can help you navigate the world of IPT. You might be able to use this knowledge to save on your insurance too.
What is insurance premium tax?
Insurance premium tax is a tax insurers pay on insurance policies. The cost is passed on to customers most of the time and is included in your insurance price.
It's added to most types of insurance and the government decides on what rate to charge. The tax was introduced in 1994, at that time it was just 2.5%.
Now, there's a standard rate and a higher rate.
At the moment the IPT rate for car insurance is at the standard rate of 12%. It's also this rate for home insurance and pet insurance. Travel insurance is on a higher rate of 20%.
According to a report by the Association of British Insurers (ABI) in the tax year 2020/2021, IPT cost was equivalent to £220 per household.
Here's how IPT has changed over the years, and the dates where it increased:
| Date of change | Standard rate (%) | Higher rate (%) |
|---|---|---|
|
01-Oct-94
|
2.5
|
N/A
|
|
01-Apr-97
|
4
|
17.5
|
|
01-Jul-99
|
5
|
17.5
|
|
04-Jan-11
|
6
|
20
|
|
01-Nov-15
|
9.5
|
20
|
|
01-Oct-16
|
10
|
20
|
|
01-Jun-17
|
12
|
20
|
Source: ABI report, IPT: A tax on protection
When I get a quote, is insurance premium tax included in the prices?
Yes, when you get a quote with us, the prices we show you will already include insurance premium tax.
Why am I charged IPT on my car insurance?
All insurance has IPT as part of the cost, it's a bit like VAT. We get charged IPT because the government introduced it as a way of generating revenue.
They did this as an alternative to raising income tax. Not many people know about IPT, the ABI reports. It found that between tax years 2011/2012 and 2021/2022, the tax revenue earned by IPT more than doubled from £2.9 billion to £6.6 billion.
Are there any exemptions to IPT?
Some types of insurance are exempt from IPT. For example:
- Long term insurances, like life insurance and permanent health insurance
- Insurance for commercial ships and aircraft
- Insurance for commercial goods in international transit
For car insurance, it's generally 12% on top of your insurance price. So for example, your car insurance costs £400 without IPT, but with 12% IPT it would cost £448. It's always 12% on top of your premium so this'll vary depending on all the factors that affect the price of car insurance. For example, your mileage and where you keep your car.
Are electric cars charged insurance premium tax?
Yes, if you're buying electric car insurance, you'll still need to pay IPT.
This has been controversial for some EV owners, and lots of people want to scrap IPT for EVs.
According to the green insurer, 3 in 5 adults would be in favour of scrapping IPT for electric cars. This might increase their popularity and perhaps encourage more people to buy an EV.
But this might be unfair to people driving petrol, diesel and hybrid cars. The argument being that, no matter what fuels your car, they're all using the road and having to buy insurance.
The cost saving might also not be enough of an incentive for people to switch to an EV.
How can I save on my car insurance policy?
The cheaper your policy the cheaper your IPT is. That's because it's 12% of the cost of your car insurance premium and not a flat rate.
There are a few things you can do to reduce your car insurance costs (this should then reduce the amount of IPT you pay):
- Improve your car's security
- Pay for your policy annually
- Be accurate when you're declaring your mileage
- Use a price comparison site (ahem, like Confused.com) to get our best deal on your car insurance
There are loads more ways you can save on your car insurance, read our guide on how to get cheap car insurance to find out more.
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