You may have seen increasingly more of the term ‘Insurance Premium Tax’ or ‘IPT’ over the last year, but what does the term actually mean and how does it affect you?
The low down…
Insurance Premium Tax was first introduced in 1994 by HM Revenue & Customs. Simply put, Insurance Premium Tax is the insurance world’s equivalent to VAT and is a tax that is added on to general insurance premiums, including home insurance, car insurance and travel insurance. IPT is added to insurance in the same way that VAT is added onto most goods and services in the UK, it is in no means, an additional cost charged by the insurers to get more money. It is, however a legal requirement added by the UK government.
There are two separate rates of IPT; standard rate & a higher rate, which rate is added to your quote price is dependent upon the insurance type that you are purchasing.
Insurance Premium at the standard rate is 12%. This is applied to pet, mobile, motor, contents, buildings and private medical insurance policies.
Insurance Premium Tax at the ‘higher rate is charged at 20%, this is applicable for insurance products such as travel, medical, electrical appliances and some vehicles.
Why does IPT keep going up?
We know that the hikes in the price of IPT will annoy many people but it is worth noting that the UK rate of 12% will still be lower than many EU countries. And not only that but it is unfortunately, unavoidable and after all, there is a much higher price to pay if you choose to drive uninsured.