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The history of Insurance Premium Tax rises in the UK


All insurance quotes and premiums you get in the UK are subject to a tax called Insurance Premium Tax.


Like other taxes, such as VAT, there are different rates of IPT, depending on where you get your insurance from.


We will explain IPT and how it is charged, as well as show you how you can pay a lower rate if you buy GAP Insurance independently from a specialist like GAPInsurance123.


IPT, the tax on insurance


What is Insurance Premium Tax?


Well, it is a form of tax that must be added to any insurance premium you are given in the UK today. It is collected and paid directly from the insurer to the Treasury, along with your premium.


Many insurance products are subject to IPT, from GAP Insurance to motor insurance, service plans to warranties. If the product you buy is not insurance backed, then the price of it would be subject to VAT instead.


History of Insurance Premium Tax


Let's take a moment to travel back in time. When IPT was first introduced in 1994, it was a mere 2.4%. Over the years, the tax has seen several changes to keep up with industry developments and ensure fairness. 


The most recent change was in April 2017, when the standard rate rose to 12%, while the higher band remained at 20%. It's always important to monitor these changes as they directly impact your insurance premiums.


As reported by Statista on the 4th May 2023, the Government collected a record £7.34 billion of Insurance Premium Tax in the tax year 2022/23. The data specialists also showed that there has been a steep climb in IPT receipts since the standard IPT rate rise to 12% in 2017.


Current Rates of IPT (Insurance Premium Tax)


Now, let's delve a bit deeper into the rates of IPT. There are two main rates to be aware of. The standard rate of IPT is currently 12%. This applies to everyday insurance like home, car, or pet insurance. 


On the other hand, the higher rate of 20% is reserved for travel insurance and insurance sold with cars and domestic appliances. 


Remember, the rate applied depends on the type of insurance you're buying and from whom you are buying it. 


How IPT is calculated


You might be wondering, 'How is IPT calculated?' Well, it's quite straightforward. IPT is calculated as a percentage of your insurance premium. 


For instance, if your annual premium is £300, with a 12% IPT, you'll pay £336 in total. 


If the higher rate of 20% applies, your total cost will be £360. So, the higher your premium cost, the greater the tax.


Exemptions from IPT


Interestingly, not all insurance is subject to IPT. Certain types of insurance are exempt, including life insurance, permanent health insurance, commercial aircraft and ship insurance, and risks located outside the UK. 


So, it's worth checking if your insurance falls into one of these categories.


Also, if you reside in the Isle of Man or the Channel Islands, you are exempt from IPT. 


Impact of IPT Increase


What happens when IPT increases, you ask? 


Typically, insurance providers pass on the increase to their customers. 


However, some companies may temporarily reduce the cost of premiums so that their customers don't feel the immediate impact of the tax increase. Regardless, the same tax percentage must be collected and paid to the Government by the insurance provider.


Insurance Premium Tax and your GAPInsurance123 quote           What is the rate of Insurance Premium Tax?

IPT is included in your quote automatically, and with all vehicle quotations from ourselves, the premium you see has the correct rate of IPT included in the price. So if we quote you £150, then that is the price you pay, as IPT is already included in our quotes from GAPInsurance123.


The rate at which IPT is calculated is based on a percentage of the premium price. Currently, this rate is 12% for a specialist like ourselves. However, this is subject to change, as you can see from the graph. 


Here is a very important point:


The rate of IPT is different if the company quoting you is involved in the sale or provision of the vehicle to you.

For example, if the motor dealer who sells you the vehicle also provides you with GAP Insurance, then the rate of IPT must be charged at the same rate as VAT, currently 20%.

If you buy GAP Insurance from an independent broker such as GAPInsurance123, it is only 12%.


So you can immediately make an 8% saving before we even begin on any other savings we can offer you.


Your motor dealer may not tell you of this, and indeed, we believe that many motor dealers do not even realise that there is a legal requirement for the difference. Still, the 8% saving is one major reason motor dealer products seem quite expensive.


GapInsurance123 and IPT savings


The tax saving by using an independent broker is just the beginning of the savings you can make.


A motor dealer is restricted to selling GAP Insurance to their own customers, and so may only present a few hundred policies to the insurer each year. An independent broker such as GapInsurance123 will produce that many sales in a matter of days, and so the negotiating power we have with the suppliers of GAP Insurance provides us with massive discounts.


These cost savings can be passed on to our customers, meaning you can find 80% or more savings on comparable products between the dealer and a broker.

it's not just about Insurance Premium Tax; you can see you can save on IPT by purchasing independently.

This information is correct as of June 2023. This rate of insurance premium tax is subject to change.


Updated 11/6/23, written by Mark Griffiths