Tax is never a fun word, and insurance premium tax (IPT) is no exception. It's a government-set tax on your insurance premium, and knowing how it works could help you save on your cover. Here's our guide to getting your head around it.
Key takeaways
- Insurance Premium Tax (IPT) is a government tax on insurance premiums. The standard rate is 12%, and it covers most car, home, and pet insurance policies
- A higher 20% rate applies to some products, like travel insurance and certain specialist policies
- You won't see IPT as a separate charge. Your insurer pays it to HMRC and builds the cost into your premium
- IPT is a percentage, not a flat fee, so anything that lowers your base premium also lowers the tax on top
- Going electric won't help here. EVs pay the same IPT as petrol and diesel cars, with no exemption at the moment
What is insurance premium tax?
IPT stands for insurance premium tax. Insurance premium tax is a tax insurers pay on insurance policies. The cost is passed on to customers most of the time and is included in your insurance price.
Insurance premium tax in the UK is added to most types of insurance, and the government decides on what rate to charge. The tax was introduced in 1994, at that time it was just 2.5%.
Now, there's a standard rate and a higher rate.
So, how much is IPT? At the moment the IPT tax rate for car insurance is at the standard rate of 12%. It's also this rate for home insurance and pet insurance. Travel insurance is on a higher rate of 20%.
According to a report by the Association of British Insurers (ABI) in the tax year 2020/2021, IPT cost was equivalent to £220 per household.
Here's how the IPT rate has changed over the years, and the dates where it increased:
| Date of change | Standard rate (%) | Higher rate (%) |
|---|---|---|
|
1 October 1994
|
2.5
|
N/A
|
|
1 April 1997
|
4
|
17.5
|
|
1 July 1999
|
5
|
17.5
|
|
4 January 2011
|
6
|
20
|
|
1 November 2015
|
9.5
|
20
|
|
1 October 2016
|
10
|
20
|
|
1 June 2017
|
12
|
20
|
Source: ABI report, IPT: A tax on protection
Who pays insurance premium tax?
Insurers pay insurance premium tax (IPT) directly to HMRC, not the customer.
But insurers pass the cost on within the price of the policy, so in practice the customer pays it. You won't see it as a separate charge. It's already included in your premium.
When I get a quote, is insurance premium tax included in the prices?
Yes, when you get a quote with us, the prices we show you will already include insurance premium tax.
Why am I charged IPT on my car insurance?
Most general insurance has IPT as part of the cost, it's a bit like VAT. We get charged IPT because the government introduced it as a way of generating revenue. They did this as an alternative to raising income tax.
Not many people know about IPT insurance. HMRC figures show that IPT receipts rose from £3.29 billion in 2015/16 to a record £9.04 billion in 2025/26, nearly tripling in a decade.
Are there any exemptions to IPT?
Some types of insurance are exempt from IPT. For example:
- Long-term insurances, like life insurance and permanent health insurance
- Insurance for commercial ships and aircraft
- Insurance for commercial goods in international transit
How is IPT calculated?
For car insurance, it's generally 12% on top of your insurance price. So for example, your car insurance costs £400 without IPT, but with 12% IPT it would cost £448.
It's always 12% on top of your premium, so this'll vary depending on all the factors that affect the price of car insurance. For example, your mileage and where you keep your car.
Are electric cars charged insurance premium tax?
Yes, if you're buying electric car insurance, you'll still need to pay IPT. As of October 2026, there's no exemption or reduced rate for EVs.
This has been controversial for some EV owners, and lots of people want to scrap IPT for EVs. The argument is that it could make EVs more popular and encourage more people to buy one.
But this might be unfair to people driving petrol, diesel and hybrid cars. The argument being that, no matter what fuels your car, they're all using the road and having to buy insurance.
The cost saving might also not be enough of an incentive for people to switch to an EV.
How can I save on my car insurance policy?
The cheaper your policy, the cheaper your IPT is. That's because it's 12% of the cost of your car insurance premium and not a flat rate.
There are a few things you can do to reduce your car insurance costs (this should then reduce the amount of IPT you pay):
- Buy more security for your car
- Pay for your policy annually
- Be accurate when you're declaring your mileage
- Use a price comparison site (ahem, like Confused.com) to get our best deal on your car insurance
There are loads more ways you can save on your car insurance, read our guide on cheap car insurance to find out more.
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