Insurance Premium Tax (IPT), is a government tax on the majority of insurance policies, there are two different rates of IPT, the standard rate at 12% and the higher rate at 20%. Initially in 1993 when IPT was introduced this was set at 2.3%, but over recent years has increased, in 2011 this was at 6%; by 2015 9.5%; by 2016 10% and 2018 12%.
The standard rate of 12% is associated with the majority of insurance policies such as car, van, and household, whereas the higher rate of 20% is generally used for travel insurance, appliance insurance and some car insurance policies.
This tax is added as a percentage on top of the premium itself, therefore the higher the premium the higher the cost in tax will be that has been applied. Based on Government’s Tax and NIC receipts statistics table, the government generated a total of £6.13bn from IPT alone between October 2017 and September 2018.
According to Association of British Insurers (ABI), IPT is referred to as ‘The Mother of all Stealth Taxes’ because:
- Around half the population (48%*) is unaware of its existence
- It’s levied on products regarded as either completely or mostly essential by 58%* of people
- It raises more money for Government than sin taxes on beer, wine or gambling
- It’s set to cost every UK household £200* this year, given the knock-on effect on costs charged by a range of businesses
- The UK has the 6th highest rate in Europe
*Statistics from Social Market Foundation report, “The impact of Insurance Premium Tax on UK households”, October 2017.