Insurance Premium Tax (IPT) is a tax paid on most general insurance premiums in the UK. Unlike VAT, IPT is not reclaimable by businesses, which makes it a real cost to both individuals and companies purchasing insurance. Despite its widespread applicability IPT is embedded in the premium of most home, car, pet, travel, and commercial insurance policies it is poorly understood by the vast majority of policyholders. This definitive AccFirm guide explains everything about Insurance Premium Tax in the UK for 2026, including the current rates, which insurance is exempt, and how IPT affects your business insurance budget.
What Is Insurance Premium Tax?
Insurance Premium Tax is a UK government tax levied on certain general insurance contracts. It was introduced in 1994 and is administered by HMRC. IPT is charged on the premium paid to the insurer not on claims, not on brokers’ fees, and not on any other element of the insurance transaction.
IPT is similar in concept to VAT but operates differently:
- VAT: Charged at the point of sale and reclaimable by VAT-registered businesses as input tax
- IPT: Charged on insurance premiums and cannot be reclaimed by businesses as input tax it is a final cost to the buyer, whether individual or business
For most policyholders, IPT is invisible it is embedded within the quoted premium and not shown as a separate line item on most renewal notices or policy documents. However, it represents a significant proportion of your total insurance cost.
Insurance Premium Tax Rates 2026
There are two rates of IPT in the UK:
| IPT Rate | Rate | Applies To |
| Standard Rate | 12% | Most general insurance (home, motor, commercial, pet, travel most policies) |
| Higher Rate | 20% | Mechanical or electrical appliance insurance; travel insurance sold with a travel product; some vehicle insurance sold with vehicles |
The standard rate of 12% applies to the overwhelming majority of insurance policies. The higher 20% rate was introduced to tackle perceived tax avoidance in specific sectors where insurance was being sold as part of a bundled product at artificially inflated prices.
Which Insurance Is Exempt from IPT?
Not all insurance is subject to IPT. The following types of insurance are exempt:
- Life insurance and permanent health insurance (long-term life cover)
- Commercial marine, aviation, and transport insurance (for goods in transit internationally)
- Export credit insurance
- Reinsurance contracts
- Health insurance provided by way of employee benefit in kind (though this may be subject to other tax treatment)
- Insurance contracts where the insured person or risk is located outside the UK
- Financial guarantee insurance and related long-term insurance products
Note: Whilst health insurance through employment may be IPT exempt as a standalone contract, private medical insurance purchased directly by individuals is subject to the standard 12% IPT rate.
How IPT Affects Common Insurance Types
Motor Insurance
Car, van, motorcycle, and fleet insurance are all subject to the standard 12% IPT rate. On a £600 annual car insurance premium, IPT adds approximately £64.29 (the IPT is £600 ÷ 1.12 × 0.12 = £64.29 of the total premium). Given that the average UK car insurance premium exceeded £900 in 2024, IPT represents a significant absolute cost for most drivers.
Home Insurance (Buildings and Contents)
Both buildings and contents insurance are subject to the standard 12% IPT rate. Combined home insurance policies (buildings plus contents) include IPT across the full premium.
Business Insurance
Commercial insurance including public liability, employers’ liability, professional indemnity, business interruption, commercial property, and product liability is subject to the standard 12% IPT rate. Because IPT on business insurance is not reclaimable as input VAT, it is a genuine extra cost to businesses that must be factored into budgeting.
Travel Insurance
Standalone travel insurance is subject to the standard 12% IPT rate. However, travel insurance sold as part of a bundled package with a travel product (such as comprehensive cover sold with a package holiday or sold by an airline or travel agency) is subject to the higher 20% rate.
Pet Insurance
Pet insurance is subject to the standard 12% IPT rate. As pet insurance premiums have risen sharply in recent years due to increased veterinary costs, the absolute IPT cost has increased accordingly.
Can Businesses Reclaim Insurance Premium Tax?
No. This is one of the most important practical points about IPT for UK businesses. Unlike VAT, IPT cannot be reclaimed as input tax by VAT registered businesses. Whether you are a sole trader, partnership, or limited company, IPT paid on business insurance premiums is a genuine, irrecoverable cost of doing business.
The IPT element of business insurance premiums is, however, tax-deductible as a business expense for Income Tax (sole traders/partnerships) and Corporation Tax (limited companies) purposes reducing the tax bill by the applicable rate (20%, 40%, or 45% for income tax, or 19%–25% for Corporation Tax). But it cannot be fully offset in the way that VAT is offset, making IPT a more expensive tax in practice for most businesses.
Who Pays IPT to HMRC?
IPT is paid by the insurer (not the policyholder) directly to HMRC. Insurers are required to register for IPT with HMRC if they carry on a taxable insurance business in the UK. They account for IPT on a quarterly basis, submitting IPT returns and making payment to HMRC.
From the policyholder’s perspective, IPT is simply embedded in the premium they pay. The insurer accounts for and remits the tax the policyholder has no direct relationship with HMRC for IPT purposes.
IPT vs VAT: Key Differences
| Feature | IPT | VAT |
| Current standard rate | 12% | 20% |
| Reclaimable by businesses? | No | Yes (for VAT-registered businesses) |
| Applies to insurance? | Yes (general insurance) | Generally exempt from VAT |
| Administered by | HMRC | HMRC |
| Paid by | Insurer (collected from policyholder) | Business supplying goods/services |
| Deductible business expense? | Yes (as part of insurance cost) | Yes (where not reclaimed as input tax) |
Frequently Asked Questions: Insurance Premium Tax
Is IPT included in my insurance quote?
Yes insurance quotes and renewal premiums in the UK include IPT within the total figure shown. You are not usually asked to pay IPT separately. Check your policy schedule if you want to see the IPT-exclusive premium and the IPT amount broken out.
Why can’t I reclaim IPT like VAT?
IPT was designed as a final-stage tax on insurance consumption deliberately non-reclaimable to raise government revenue from insurance spending. This is a policy choice by HMRC, not a technical limitation.
Does life insurance attract IPT?
No. Life insurance (term life, whole-of-life, and permanent health/income protection policies) is exempt from IPT. Only general insurance property, liability, motor, travel, pet is within the IPT scope.
Is private medical insurance (PMI) subject to IPT?
Yes individual private medical insurance policies are subject to the standard 12% IPT rate. Group policies provided by employers to employees may have different treatment, and the benefit itself may be subject to Income Tax as a benefit in kind.