Your guide to Insurance Premium Tax

What exactly is Insurance Premium Tax? Here’s a run-down of the key things you need to know and how it affects you.

Published: 03 Jul 2024 Last updated: 08 Apr 2026 4 mins read

Key points

Insurance Premium Tax is a Government tax applied to most UK general insurance premiums, and your insurer pays it directly after collecting your premium.
There are two rates: 12% for most policies and 20% for travel insurance or insurance sold with cars or appliances
The Government sets the rate, and insurers often pass any increases on to customers.
Some insurance types do not carry IPT, such as life insurance, permanent health insurance and certain commercial policies.

Insurance Premium Tax (IPT) is a tax, like VAT, that applies to most general UK insurance premiums. After your insurance provider collects the premium (the amount you pay on a regular basis for your insurance policy) from you, the tax is paid directly to the Government.

Currently, there are two rates of IPT. The standard rate of 12% is charged on home, car or pet insurance.

The second is a higher rate of 20% which applies to travel insurance, as well as to insurance sold with cars and domestic electrical appliances.

How is Insurance Premium Tax (IPT) calculated?

The Government sets IPT which is calculated as a percentage of your premium, meaning the higher your premium cost, the greater the tax.

For example:

If your annual premium is £300, with 12% IPT, it will be £336. Or at the higher rate of 20%, it will be £360.

If your annual premium is £600, with the 12% IPT, this will be £672. At 20%, it will be £720.

How has IPT increased over the years?

IPT levels are set in the Government’s Budget, and the rate has increased over time, impacting insurance premiums. When introduced in 1994, the rate was just 2.5%.

Over the past 25 years, several changes have been made to the tax to ensure it keeps up with industry developments, remains fair and removes opportunities for avoidance and evasion.

The higher rate came into effect in 1997 to address VAT avoidance, where businesses selling insurance with other goods could artificially reduce the price of that item and inflate the cost of the insurance.

The last tax increase was in June 2017. The standard rate rose to 12%, but the higher rate stayed at 20%.

When the Government increases the tax, insurance providers usually pass this on to their customers.

Why do you need to pay IPT?

IPT generates revenue for the Government. When customers pay their premium, the insurance provider must pass the tax – either 12% or 20% – collected on the premium directly to the Government.

Are there any exemptions?

Some types of insurance are exempt from IPT, for instance, life insurance, permanent health insurance, commercial aircraft and ship insurance, and risks located outside the UK. Visit HMRC for a comprehensive list.