What is Insurance Premium Tax?

An insurance premium is a term used to describe the cost of an insurance policy, but what is Insurance Premium Tax (IPT)?

Learn more about IPT, whether it applies to your business and more with this Hiscox guide.


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Do I have to pay Insurance Premium Tax?

Insurance Premium Tax is applied to general insurance premiums and is incorporated in the price you pay. The types of insurance this tax applies to include home insurance and car insurance [1].

IPT is a mandatory tax set by the government for insurance companies and is payable by the customer on their policy premiums.


Who is exempt from Insurance Premium Tax?

Certain types of insurance are exempt from the rules of IPT. These include:

  • Life insurance
  • Income protection insurance
  • Mortgage cover
  • Continuing health insurance
  • The majority of long-term insurance
  • Re-insurance.

GOV.UK features a full list of IPT exemptions (external link).


Why do I have to pay Insurance Premium Tax?

Before Insurance Premium Tax (external link) was introduced in 1994 [2], a tax wasn’t applied to insurance premiums, despite this being the case for many other services and products.

Due to this, the government introduced IPT to generate revenue and to apply tax to insurance in accordance with other services. When you pay for your insurance, the tax from that premium is passed on to the government by your insurer.


How is Insurance Premium Tax calculated?

The cost of the Insurance Premium Tax you pay will depend on who provides the cover and the insurance type. The calculation is made by taking the IPT rate applicable to your insurance and applying the rate as a percentage of the premium.


What are the Insurance Premium Tax rates?

  • Standard rate IPT – this rate is 12% and applies to most insurance types, including business, car, pet and home insurance
  • Higher rate IPT – this rate is 20% and applies to travel insurance and supplier-arranged cover for things such as vehicles (normal motor cover is 12%) and home appliances [3].


Do these IPT rates change?

Yes, these rates can change as they’re reviewed and set each time the government releases its Budget. Since IPT was first introduced in 1994, it’s gone through several adjustments.

HMRC says this is to guarantee IPT:

  • Keeps pace with developments in the insurance industry
  • Works fairly
  • Is difficult to evade.

The most recent change to IPT rates was in June 2017 – before this:

  • The standard rate was 10%
  • The higher rate was still 20%


Can I claim back Insurance Premium Tax?

As IPT is a different type of tax to VAT, it’s not possible to claim it back on your VAT return. However, there are ways you can reduce the amount of IPT you need to pay – this can be achieved by reducing the insurance premium itself.

There are many ways to lower insurance premiums, depending on the type of insurance you take out. For car insurance, you might cut down on mileage or look at security options such as investing in a tracking device or an immobiliser.

Alternatively, those hoping to reduce their home insurance premiums may choose to shop around for the best deal, increasing their excess and avoiding over-insurance.


Do I pay IPT on business insurance?

Yes, everyone who buys insurance must pay IPT on it – this includes business insurance.

Of course, the payable amount of IPT on your premium will vary depending on the cost of the premium itself.

How much your business insurance costs will depend on several factors. These include:

  • How many types of cover you add to your policy
  • Your business size and where you work
  • The risks your business encounters
  • The cover limits you choose to apply to each insurance type.

Insurers such as Hiscox also offer customers the option to tailor insurance policies with exactly the cover they need, rather than paying out for insurance irrelevant to their business.

Compare business insurance quotes to get a comprehensive idea of the best protection for what you do and the best premium price to keep outgoings low.

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Our FAQ pages provide general information and background around the topic covered. FAQ pages are reviewed and monitored periodically by our insurance experts. But the content is not intended to be read as advice and any material is for general information purposes only. If you would like advice for any content, please seek professional assistance.