Insurance Premiums Tax is a tax levied by H.M. Customs and Excise on the premium you pay for most general insurance policies. It was initially introduced at 2.5% on 1st October 1994, but was increased in stages to the current rate of 5% as from July 1999.
Insurance Premium Tax (IPT) applies to general insurance policies where the risk is located in the UK. It includes motor, household, medical (including long–term cover), income replacement, travel and other protection cover. Life insurance policies and long–term plans with an investment element do not attract IPT.
Depending on how you buy your insurance, you may have to pay more tax. A higher rate of 17.5% was introduced in April 1997, which applies to all travel insurance, and also to insurance policies purchased as add–ons to other products, for example, for an extended warranty for when you buy a television, you will pay IPT at the higher rate.
It follows that any adjustments made to the rate of premium will always be added or subtracted net of tax. Therefore, once the Insurance Premium Tax is factored into the equation, the percentage term, when calculated againt the tax applied figure, may work out to be a differant percentage amount to that initially quoted. An example of this is illustrated by the December 2008 reduction in the rate of VAT, reduced from 17.5% to 15%. In that case, when making adjustments to prices on goods for which VAT is payable, each will become 2.1% cheaper and not 2.5% as the figures may initially suggest.
This page was last updated
Tuesday, 07-Dec-2010