A simples guide

How much is insurance premium tax?

In the most recent budget, the Chancellor raised the standard rate of insurance premium tax (IPT) from 9.5% to 10%. The change will come into effect from 1st October 2016. The Chancellor claimed that the rise was to “help the government fund flood defences and resilience”.


The overview

Given that when IPT was first introduced in 1994, the Government argued that it was a tax on insurers and not consumers….only to see the tax immediately passed on to those consumers, the cynical may claim that this has little to do with flood defences.

Since 1994, the standard rate had risen progressively to 6% in 2015 when in November that year it was raised nearly 60% to 9.5%. Most analysts had feared a further rise to 12.5% in this year’s budget, so the change to 10% came as a relative relief.

This standard rate applies to all car insurance policies.

What this means then is that for an insurance policy costing £500, £50 of IPT will be payable from October this year. The insurer will quote you £550 for your policy and then they are responsible for submitting the tax to the Government.

Many argue that the tax on car insurance in particular is unfair, as it penalises those who already pay most. The young and first time drivers are particularly hard hit with many paying in excess of £100 IPT each time they renew their car insurance.

Take for example a young driver paying £1,000 per year before IPT is added. In October 2014 the IPT would have been an extra £60 so £1,060 in total. From October this year, if the underlying premium remains unchanged, IPT will rise by another £40 to £100 and the total premium to £1,100.

Unfortunately there is nothing you can do about paying the IPT per se. Your best bet is to shop around and find the most competitive quote that you can. Remember car insurers often offer cheaper quotes to attract new drivers, so by comparing prices, you will get access to the best deals on offer. Here at comparethemarket.com, we believe we’ve made the process of comparing prices as simple as it can possibly be. Find out how simple by giving it a try today.

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