Insurance premium tax (IPT) is a tax on normal insurance coverage premiums and applies to all forms of insurance coverage, together with automobile insurance coverage. IPT is an oblique tax levied on insurance coverage suppliers, however many insurers go on the cost to clients within the type of increased premiums.
What is IPT?
IPT was launched in 1994 and is a tax paid on all forms of insurance coverage, together with home insurance coverage, pet insurance coverage, journey insurance coverage and automobile insurance coverage.
IPT creates income for the UK authorities. When clients pay their insurance coverage premiums, insurance coverage suppliers go on the tax collected on the premiums on to the federal government.
When you evaluate automobile insurance coverage quotes, most will routinely embrace the right price of IPT, which suggests the quote you’re given already elements on this cost.
There are at present two totally different IPT charges. The commonplace price is 12 per cent, whereas the next price of 20 per cent applies to journey insurance coverage, mechanical and electrical home equipment insurance coverage and a few forms of automobile insurance coverage.
This increased price will apply to automobile insurance coverage should you’re shopping for a brand new automobile from a dealership and insuring it by way of the identical business, so ensure you test with the dealership should you’re pondering of doing this. If you purchase your automobile insurance coverage by way of a special firm, the usual 12 per cent price will apply.
Do I’ve to pay IPT on all forms of automobile insurance coverage?
You’ll pay IPT on most forms of automobile insurance coverage. Disabled drivers who lease their automobiles by way of a Motability Scheme are exempt.
In addition, IPT doesn’t apply to:
- Life insurance coverage and everlasting medical health insurance
- Mortgage insurance coverage
- Commercial ships and plane insurance coverage
- Commercial items in transit insurance coverage
- Reinsurance
How is IPT calculated?
IPT is about by the UK authorities. It is calculated as a proportion of your particular person premium. This implies that the upper your premium cost, the extra tax you’ll pay. As an instance, in case your annual automobile insurance coverage premium is £400, your whole cost will probably be £448 when factoring an IPT price of 12 per cent or £480 on the increased price of 20 per cent. If your premium cost is £500, it will likely be £560 with an IPT price of 12 per cent or £600 with a price of 20 per cent.
IPT was launched in October 1994, and the usual price has elevated from 2.5 per cent to its present stage of 12 per cent. IPT ranges are set within the authorities’s finances, and charges have modified to maintain up with {industry} developments and cut back the danger of tax avoidance and evasion.
The increased price of IPT was launched in April 1997 at 17.5 per cent and elevated to its present price of 20 per cent in January 2011. This increased price was launched to deal with VAT avoidance, the place businesses promoting insurance coverage with different items had been capable of artificially cut back the worth of a product however inflate the cost of the insurance coverage, permitting them to profit from a decrease tax price.
Modelling by the Association of British Insurers (ABI) reveals that the cost of IPT in 2020/21 was equal to round £220 per family. What’s extra, HMRC figures present that between 2011/12 and 2021/22, the quantity of tax income raised from IPT greater than doubled, growing from £2.9 billion to £6.6 billion.
Unfortunately, there’s nothing drivers can do about IPT. And no matter you do, don’t be tempted to drive with out automobile insurance coverage in place. If you’re caught driving a automobile that’s not insured, you can be given a set penalty plus factors in your licence. If the case goes to courtroom, you can be given an infinite effective and even be disqualified from driving.
However, there are steps you’ll be able to take to assist cut back the cost of your total automobile insurance coverage premiums. These embrace:
- Shopping round for canopy: Using a value comparability web site can assist you to simply evaluate quotes from a variety of insurers and discover one of the best deal
- Avoiding modifications: Insurers don’t like modifications, corresponding to tinted home windows and spoilers, and also you’ll pay the next premium in case you have them
- Parking your automobile on a driveway or in a storage: If you permit your automobile on the road every night time, you’ll probably pay extra for canopy, because it’s at the next threat of theft or injury
- Reducing your mileage: Reducing how a lot you drive can cut back the probability of an accident, which suggests the cost of your premiums will probably be decrease
- Increasing your extra: The extra is the quantity you could pay in direction of the cost of an insurance coverage declare. This is made up of a obligatory extra set by the insurer and a voluntary extra, which you select. The increased your voluntary extra, the decrease your premiums will probably be, however ensure that the surplus continues to be inexpensive
- Improving your automobile’s safety: Adding an industry-approved immobiliser or tracker to your automobile can assist decrease your premiums, as there’s much less probability of your automobile being stolen
- Choose a automobile in a decrease insurance coverage group: All automobiles are sorted into one among 50 insurance coverage teams, with these on the decrease finish being cheaper to insure
