How does Insurance Premium Tax (IPT) affect car insurance?

The rise in Insurance Premium Tax (IPT) to 12% in June 2017 has led to an increase in car insurance premiums.

Daniel Hutson From the Motor team
minute read

What car insurance does the higher 20% IPT rate apply to?

The higher rate is sometimes charged on car insurance policies taken out directly with a car dealership, for example, when you buy a brand-new car. For that reason, always check before you take up an offer of insurance from a dealership (the higher rate won’t apply if you’re offered car insurance free as part of a package).

Split 1

How has IPT increased over the years?

In 1994, the introductory standard rate of IPT was just 2.5%. But over the years IPT has increased, to 6% in 2015, then to 9.5% in November 2015, and in October 2016 it rose by 0.5% to 10%.  Today’s rate of 12% means that IPT has doubled in only a few years.

How does IPT affect the price of car insurance?

In the three-year period since IPT stood at 6% in 2015, the average price of car insurance has dropped by £8**.  

The increase of the standard IPT rate to 12%, means that British motorists now pay an average of £56 more in IPT than they did in 2015.  

But it’s young drivers who will be the hardest hit as they’re the ones that pay the highest premiums. Our latest young drivers report found that 17-24-year-olds spent an average of £1,281*** on their car insurance premium.  According to ABI (The association of British Insurers) annual car insurance for a typical 19-year-old driver has risen by £20 following the 12% IPT increase.

Split 2

There are also concerns that rising car insurance costs could lead to more uninsured drivers on the road. (The Motor Insurers’ Bureau (MIB) reports an estimated one million uninsured cars already on UK roads).

**Based on our Premium Drivers Report, April 2019.

***Based on our Young Drivers Report, February 2019.

How can I cut the cost of car insurance?

With the rising cost of repairs, IPT and the VED tax bands introduced on 1 April 2018, it may seem like finding cheap car insurance is an impossible challenge. 

While there’s nothing you can do about the rises, 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 for more information.

And by simply comparing car insurance with us, you could save up to £219**** on your next car insurance premium.  
****50% of people could achieve a quote of £219 per year for their fully comprehensive car insurance based on Compare the Market data in February 2019 


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