60-second summary
Need the quick take on IPT and potential increases? Here are the key facts:
Around 84% of UK households pay IPT (Insurance Premium Tax), yet many of us have little or no knowledge of what it is, or how it impacts our premiums.
IPT is a tax that’s added to certain insurance premiums, including car insurance, home insurance and pet insurance.
Other types of insurance, including life insurance, permanent health insurance and some commercial insurances are exempt from IPT.
The Government sets the IPT in its annual budget.
IPT has two rates – a lower bracket of 12% and a higher rate of 20%. The lower rate has risen from 2.5% in 1994 to 12% in 2017.
IPT is likely to hit the least well-off the hardest since they spend proportionally more on their general insurance.
The Association of British Insurers (ABI) is pressing the government to cut the IPT rate but, as yet, it’s not clear if or when this might happen.
What is Insurance Premium Tax?
Around 84% of UK households pay IPT or Insurance Premium Tax, yet many of us have little or no knowledge of what it is, or how it impacts our premiums.
IPT is a tax that’s added to general insurance premiums such as car insurance, home insurance, and pet insurance. Most long-term insurance, like life insurance and medical insurance, is exempt from the tax.
Introduced in the 1994 Budget at a rate of 2.5%, IPT has since increased six times. After rising to 6% in April 2011, the rate jumped to 12% in June 2017.
There’s also a higher rate of 20% that applies to travel insurance, electrical appliance insurance and some vehicle insurance.
According to the ABI (The Association of British Insurers), the tax increase was ‘unfair’, adding around £200 more to household bills. It’s estimated that on car insurance alone, many UK policy holders are paying an extra £67 a year.
Are any more IPT rises expected?
Since 2017, the IPT rate has stood at 12%, and it’s always possible that it could increase again in future.
However, the ABI is now campaigning for the Government to reduce rates and bring insurance premiums back down to an affordable level. Particularly since it’s those who are more financially stretched – such as young drivers and low income families – that are hardest hit.
The ABI believes that the current IPT rate punishes those who try to make responsible choices – and could potentially lead some to scrimp on their insurance.
In fact, there are concerns that further increases in IPT, on top of the already eye-watering insurance costs for younger drivers, could result in more uninsured drivers on the road.
So, while it’s not certain yet what impact the ABI’s campaign will have, there’s a strong argument to curb rates and make general insurance more affordable.
For more information, check out our guide on IPT and how it affects car insurance.
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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.
As an award-winning journalist, author and broadcast commentator, Kate has been writing about personal finance for more than 20 years. She’s the former Money Editor for The Independent.
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