An introduction to Insurance Premium Tax (IPT)
You may not have realised it before, but if you’ve taken out car insurance, business insurance, home or even travel insurance, you’ve most likely paid IPT or Insurance Premium Tax. It's not typically as famous or as big of a name as the ever visible 'VAT' and because of this, it may not be all that obvious what it is or why it’s there. IPT is one of those taxes that most people don’t notice until someone points it out, or maybe you think you’ll be able to claim back VAT and then realise it’s not applicable, but it’s been a steady part of UK insurance for over 30 years.
So what is IPT? We’ll explain…
What is IPT?
To put it as simply as we possibly can, IPT is a tax on general insurance premiums. The UK government charges this tax on most insurance premiums, and insurance companies like us, include this in your total insurance premium so that we can pass it straight onto the taxman.
Why is IPT there?
IPT was introduced in 1994 as a way to raise funds from the insurance sector. The reasoning was that, unlike most goods and services which are subject to VAT, insurance can’t be charged VAT under EU law at the time, so IPT was created as a substitute to come up with money for the government.
At the time IPT was first introduced back in the early 90’s, the tax rate was at a low 2.5%.
So how much is IPT now?
As with most things it seems, the rate of IPT has been creeping up over the years from the original 2.5%. When IPT was introduced in 1994, it was just 2.5%. It’s had several increases since then, with the standard rate reaching 12% in 2017.
There are two rates of IPT in the UK:
Standard rate - Currently 12% (as of 2025) This applies to most types of insurance, including car, home, pet, and so on.
Higher rate - Currently 20% This applies to certain types of insurance sold alongside things like appliances, travel, and some car dealership add-ons. It’s set at the same level as VAT to keep things fair with other taxable goods.
So when we’re calculating your insurance premium to include IPT, the IPT on your temporary car insurance policy is at 12% as set by the UK Government.
How does IPT affect premiums?
IPT is a percentage tax, so when your base premium is higher, the IPT goes up too. This means if insurers increase their prices (for example, due to inflation, higher claim costs, or regulatory changes), the tax bill rises automatically.
A quick example of IPT in action
Let’s say your annual car insurance premium is £500 before tax.
Standard rate IPT at 12% = £60
Your total bill = £560
That £60 doesn’t go to us, the insurer - we pass it straight to HMRC.
What insurance is subject to IPT (and what is not)
Subject to IPT
Car, motorbike or van insurance
Home and contents insurance
Private health insurance
Pet insurance
Travel insurance
Business insurance
Exempt from IPT
Life insurance
Insurance for commercial ships and aircraft
Insurance for goods in international transit
What's the difference between IPT and VAT?
IPT is only for insurance and has its own rates and rules. Insurance is generally exempt from VAT in the UK and many other countries, so IPT is essentially a “VAT-like” workaround for that exemption.
You can’t claim IPT back like businesses can reclaim VAT, and insurers can’t avoid it unless the policy is exempt.
Can IPT ever be waived or discounted?
For most everyday insurance policies, no IPT cannot be waived. Unless your insurance type is one of the official exemptions listed above, you will pay the full IPT.
Do businesses have to pay IPT?
Yes, absolutely. It’s not just applicable to personal insurance like car or health insurance - businesses in the UK have to pay IPT on their insurances as well.
This will apply to insurances such as Public Liability, Employers’ Liability and other professional insurances like Professional Indemnity etc..
Can I see how much IPT I'm paying when I buy a Covertime policy?
At Covertime we always show you exactly what you are paying and give you a full breakdown of your total premium before you buy, and that includes how much IPT is included.
IPT in a nutshell
IPT is a UK tax on most insurance premiums which started in 1994, at just 2.5%. The standard rate of IPT is 12% for most insurance types, and 20% for the higher rate. Everyone with taxable insurance pays IPT, and is included in your premium so your insurer can pay it straight to the taxman.