Published17 June 2026
Everything you need to know about Insurance Premium Tax
What is Insurance Premium Tax (IPT)?
Insurance Premium Tax (IPT) is an indirect tax charged by the UK government on general insurance premiums, including car insurance. It's automatically included in the price of your car insurance policy, so you don't pay it separately. Every time you purchase or renew your car insurance, a percentage of your premium goes directly to HM Revenue and Customs (HMRC) as IPT.
This article explains what IPT is, how much you pay, who it affects, and answers common questions about this tax.
What does Insurance Premium Tax mean?
Insurance Premium Tax (IPT) is a government tax on general insurance premiums in the United Kingdom. It's built directly into the cost of the insurance you buy – whether that's for your car, home or other general cover – so you don't see it as a separate payment. Your insurer collects it automatically and passes it to HMRC.
Think of IPT as similar to VAT, but specifically for insurance contracts. It was introduced in 1994 at 2.5% and has risen several times since, reaching the current standard rate of 12%. Every time you pay your premium, a percentage goes straight to the government as tax, while the rest covers your actual insurance costs
What are the current rates of insurance premium tax?
In the UK, there are two rates of Insurance Premium Tax set by HM Revenue and Customs. The standard rate of 12% applies to most general insurance policies you'll come across, including car insurance, home insurance and pet insurance. The higher rate of 20% applies to specific types of insurance, mainly travel insurance and certain types of insurance sold alongside goods like electrical appliances or vehicles.
Here's a quick breakdown:
Rate Type |
Percentage |
Applies To |
Standard Rate |
12% |
Most general insurance (car, home, pet insurance) |
Higher Rate |
20% |
Travel insurance, electrical appliances insurance, certain types of vehicle insurance |
When you receive your first taxable premium, the appropriate rate is already built into the total cost you pay. The higher rate was introduced in 1997 to address VAT avoidance where businesses selling insurance with other goods could manipulate pricing.
Is insurance premium tax the same as VAT?
No, they're not the same. While both are indirect taxes collected by HM Revenue and Customs, insurance products are actually exempt from VAT. Instead, IPT applies specifically to general insurance premiums.
The key differences: VAT is charged at 20% on most goods and services, whereas IPT is 12% on the cost of the insurance. Unlike VAT, businesses can't reclaim IPT on their tax returns. Think of IPT as the government's way of taxing insurance since VAT doesn't apply to it.
Who pays insurance premium tax in the UK?
IPT applies to anyone purchasing general insurance policies in the UK, whether you're an individual or a business. This includes:
- Private car owners – all personal car insurance policies.
- Business vehicle owners – commercial vehicle insurance.
- Fleet operators – companies with multiple vehicles.
- Motorcycle owners – motorbike insurance policies.
- Van drivers – commercial and personal van insurance.
Businesses also pay IPT on commercial insurance contracts, including public liability, professional indemnity and property cover. The standard 12% rate is added to the cost of the insurance, making it an unavoidable business expense.
It's worth noting that insurance premiums for risks located outside the UK may be liable to similar taxes in other countries, rather than UK IPT.
What are the exemptions from insurance premium tax?
Not all insurance policies are subject to IPT. Certain types of cover are exempt from the tax, which means you won't pay the 12% charge on these policies.
The main exemptions from IPT include:
- Life insurance – policies that pay out on death are completely exempt.
- Permanent health insurance – also known as income protection, this cover is IPT-free.
- Long-term insurance – except for health insurance policies, which are still taxed.
- Commercial aircraft liabilities – insurance for aircraft used in commercial operations.
- Goods in international transit – cover for cargo being transported across borders.
- Disabled drivers through the Motability scheme – wheelchair-accessible vehicles remain exempt from IPT, though standard Motability vehicles now attract the standard rate from July 2026.
So while car insurance is subject to IPT, other essential protections like life insurance and income protection are not.
Can you claim back insurance premium tax?
No, you generally can't claim back Insurance Premium Tax. IPT is paid directly to HM Revenue and Customs and isn't recoverable like VAT. Even if you're VAT-registered, IPT doesn't count as input tax on your VAT return—it's a separate tax entirely. There are limited exemptions from IPT on certain insurance contracts, but these are decided when the policy is issued. If you believe IPT was charged incorrectly, contact your insurer to review your policy.
Insurance Premium Tax FAQ's
Insurance Premium Tax on car insurance is charged at the standard rate of 12%. This means for every £100 of your premium, £12 goes to HMRC as IPT. So if your annual car insurance costs £500, approximately £53.57 is IPT. The tax is automatically included in the cost of the insurance, so you'll never see it as a separate charge on your bill.
You don't need a special calculator to work out IPT. For standard rate insurance (like car, home, or pet insurance), multiply your premium by 0.12. For higher rate products (such as travel insurance), multiply by 0.20. For example, £800 car insurance includes £85.71 IPT (£800 ÷ 1.12 × 0.12). Insurers include IPT in quoted prices, so you're always seeing the final cost.
Insurance taxation in the UK works through IPT, which insurers collect from customers and pay directly to HMRC. When you buy a policy, your insurer adds the appropriate IPT rate (12% or 20%) to the base premium and includes it in your total price. The insurer then accounts for this tax and submits it to the tax authorities. Unlike VAT, businesses can't reclaim IPT, so it's a genuine cost for both individuals and companies.
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