What is Insurance Premium Tax?
Insurance Premium Tax (IPT) is a UK tax on general insurance premiums. It is charged on the premium itself, collected by the insurer, and passed to HMRC — so it is included in what you pay rather than added separately at checkout.
Why it exists. Introduced in 1994, largely because insurance is exempt from VAT. IPT was created to bring insurance within the tax base without applying VAT to it, and it has been increased several times since.
The two rates:
The standard rate applies to most general insurance — motor, home, pet, commercial. It has risen substantially from its original level, and each increase has raised premiums across the market simultaneously.
The higher rate applies to insurance sold alongside certain goods and services — travel insurance, and mechanical or electrical appliance cover sold with the appliance. This higher rate exists specifically to prevent retailers pricing goods low and loading profit into an untaxed insurance product sold with them.
What is exempt from IPT entirely:
Life insurance, critical illness and income protection.
Permanent health insurance.
Most reinsurance.
Commercial ships and aircraft, and goods in international transit.
Some risks located outside the UK.
Why it matters to you:
It is not optional and cannot be avoided. Any quote for a taxable class includes it, and a comparison between insurers is unaffected since all charge the same rate.
Increases raise everyone's premiums at once, which is why premiums sometimes rise across the market with no change in claims — worth knowing when interpreting a renewal.
It applies to the premium including broker fees in most cases, though pure advice fees can be treated differently.
Beware misleading breakdowns. Some sellers itemise IPT to make a price appear lower before tax; the total is what matters.
It is not VAT, so businesses cannot reclaim it — which is a genuine cost for VAT-registered firms and surprises many of them.