What is Insurance Premium Tax?
Insurance Premium Tax (IPT) is a tax on general insurance premiums, including car insurance, home insurance, and pet insurance. There are two rates of IPT: a standard rate of 12% and a higher rate of 20%, which applies to travel insurance, electrical appliance insurance and some vehicle insurance.
Which types of car insurance does the 20% IPT rate apply to?
The higher rate sometimes applies to car insurance policies taken out on new cars bought directly through a dealership. If you’re offered insurance at a dealership, check to see if it means paying the higher tax rate (this won’t apply if you’re offered free car insurance as part of a package).
Which types of insurance are exempt from IPT?
Most insurance policies will include Insurance Premium Tax. But there are exceptions. These include:
Cover for disabled drivers who lease a car through the Motability Scheme
Mortgage insurance
Whole of life insurance, permanent health insurance and all other long-term life/health insurance policies (excludes medical insurance).
How does IPT affect the price of car insurance?
Insurance Premium Tax is calculated as a percentage of your premium, which is then added to the total cost. IPT is an indirect tax levied on insurance providers, but many pass the cost on to customers in the form of higher prices.
Young drivers are often the hardest hit as they pay the highest premiums. Our latest young drivers research found that 17-24 year-olds pay an average of £1,495[1] for their car insurance premium.
[1] 51% of young drivers between 17-24 years old could achieve a quote of up to £1494.62 for their car insurance based on Compare the Market data in March 2025.
How can I cut the cost of car insurance?
The rising cost of living can make finding cheap car insurance very difficult.But while there’s nothing you can do about inflation, there are steps you can take to help cut the cost of car insurance. Take a look at our top tips for cheap car insurance.
FAQs
When was Insurance Premium Tax introduced?
Insurance Premium Tax was introduced in 1994, as the Government looked for a way to tax the insurance industry, which isn’t subject to VAT.
A higher rate of 17.5% was introduced in 1997 for insurance policies that offered breakdown cover, as well as travel and product insurance. This was later brought in line with VAT, at 20%.
Is IPT the same as VAT?
IPT is similar to VAT as it’s a percentage of the total amount you pay. So a car insurance premium of £500 will cost £560 once the standard rate of 12% IPT is included.
How has IPT increased over the years?
In 1994, the introductory standard rate of IPT was just 2.5%. But this has increased over the years, to 6% in 2015, then to 9.5% in November 2015, and in October 2016 it rose to 10%. Today’s rate of 12% means that IPT has doubled in only a few years.
Julie is passionate about delivering a great customer experience and rewarding people for saving on their insurance through our loyalty and rewards programme. She’s spoken to the media, including outlets like Sky News, about car and home insurance, as well as our Meerkat rewards scheme.
Rebecca Goodman is a freelance financial journalist who specialises in insurance, personal finance and consumer affairs.
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