Insurance Premium Tax (IPT) UK 2026: A Complete Guide

What is Insurance Premium Tax?

Insurance Premium Tax (IPT) is a tax on general insurance premiums charged in the UK. It was introduced in October 1994 and has been progressively increased since then. IPT is paid by the insurer to HMRC but is invariably passed on to the policyholder as part of the premium.

IPT is not a tax you pay directly -- it is embedded in your premium. When an insurer quotes you £600 for motor insurance, approximately £64 of that is IPT at 12% (£600 / 1.12 x 0.12 = £64.29). You cannot see IPT as a separate item on most policies, though some insurers do break it out.

Unlike VAT, businesses cannot reclaim IPT. It is a cost that sticks, which is why IPT increases directly raise business costs. The non-reclaimable nature makes IPT more economically distortive than VAT for business policyholders.

Standard rate: 12%

The standard rate of 12% applies to the vast majority of general insurance premiums, including:

• Motor insurance (cars, vans, motorcycles, fleet)
• Home buildings and contents insurance
• Pet insurance
• Commercial property insurance
• Employers' liability insurance
• Public liability and professional indemnity insurance
• Landlord insurance
• Cyber insurance
• Commercial vehicle insurance

For most policyholders, 12% is the only rate they will encounter.

Higher rate: 20%

The higher rate of 20% applies to:

• Travel insurance of any kind (single trip, annual multi-trip, backpacker).
• Insurance sold alongside mechanical or electrical goods -- so-called "tied insurance" or extended warranties sold at point of purchase of the appliance (e.g. a washing machine extended warranty sold by the retailer).
• Certain vehicle hire excess products sold by hire companies or third-party insurers alongside a car or van hire agreement.
• Some private medical insurance products where the policy also covers medical appliances.

The higher rate was introduced in 1997, initially only for travel insurance, to prevent abuse of lower tax rates on what were considered more discretionary products.

How the higher rate works in practice

If you buy a mobile phone insurance policy through a telecommunications retailer, the 20% rate applies because it is being sold alongside a goods purchase. If you buy the identical policy through a standalone insurance broker, it may qualify for the standard 12% rate. The insurer's classification depends on the distribution arrangement.

Exempt insurance

Several important categories are outside the scope of IPT entirely:

Life insurance

All pure life insurance policies -- term life, whole of life, and endowment policies -- are exempt from IPT. This includes joint life policies and policies written in trust.

Permanent health insurance and income protection

Long-term income protection and permanent health insurance are exempt. This covers disability income policies, critical illness cover (as a standalone policy), and long-term care insurance.

Reinsurance

Reinsurance (where one insurer insures another) is fully exempt. This reflects the wholesale nature of reinsurance and the fact that IPT would otherwise cascade through the insurance supply chain.

Commercial ships and aircraft

Insurance on commercial ships and aircraft engaged in international trade or transport is exempt, reflecting the international nature of marine and aviation insurance and the Lloyd's of London market.

Export credit insurance

Insurance covering risks on export transactions and trade credit insurance for overseas sales is exempt.

Warranties and guarantees issued by manufacturers

A manufacturer's guarantee (e.g. a 1-year warranty on a new product) is not insurance for IPT purposes and is outside scope. Only third-party insurance arrangements are within scope.

Landlord insurance and IPT

Landlord insurance falls under the standard 12% IPT rate. This covers buildings insurance on rental properties, contents insurance (where provided by the landlord), landlord liability insurance, and rent guarantee insurance.

Landlords who are self-employed or run a property business through a company cannot reclaim IPT. It is simply an allowable expense against rental income for tax purposes, reducing the profit on which income tax or Corporation Tax is paid, but the IPT itself is not recoverable.

Travel insurance costs with 20% IPT

Travel insurance is the product most policyholders encounter the higher 20% rate on. At 20%, a £150 annual travel insurance policy includes:

• Net premium (before tax): £125.00
• IPT at 20%: £25.00
• Total premium paid: £150.00

This is significantly more than the 12% rate would produce (which would give a total of £140 on the same net premium). The 8-percentage-point difference amounts to an additional £10 on a £125 net premium.

Worked example: business insurance portfolio

A small limited company has the following annual insurance premiums:

None of this £385 in IPT can be reclaimed. It is a real cost to the business. The company can deduct the total £3,360 (including IPT) as a business expense for Corporation Tax purposes, giving a 19% to 25% tax saving on the deduction -- but the IPT itself is unrecoverable.

How IPT is shown on your policy

There is no legal requirement for insurers to show IPT separately on policy documents, and most do not. Some comparison websites and insurers do break it out at quote stage to show transparency.

When you receive a policy schedule or renewal notice, the figure shown is typically the gross premium (inclusive of IPT). If you want to know the IPT component:

• At 12%: IPT = Gross premium / 1.12 x 0.12
• At 20%: IPT = Gross premium / 1.20 x 0.20

For example, a £480 motor insurance policy at 12% contains £51.43 of IPT.

IPT and tax deductibility

For businesses, insurance premiums (including IPT) are generally allowable business expenses deductible against trading profits for Corporation Tax or income tax. This includes employers' liability, public liability, professional indemnity, commercial property, and motor insurance used for business purposes.

Premiums for policies that cover private use must be apportioned. A sole trader who insures a car used 60% for business and 40% privately can only deduct 60% of the premium.

For employees, insurance premiums paid by the employer on behalf of employees may be a taxable benefit. Life insurance in a registered group scheme is usually exempt from benefit-in-kind rules, but private medical insurance paid by the employer is a taxable benefit.

History of IPT rate increases

IPT has increased substantially since its introduction at 2.5% in 1994:

The rate has been unchanged since June 2017. There has been no announcement of further increases for 2026/27.

Sources

• HMRC: Insurance Premium Tax
• HMRC: IPT: technical guidance (Notice IPT1)
• HM Treasury: IPT statistics