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The 6th Highest Insurance Premium Tax In Europe

The standard rate of Insurance Premium Tax (IPT) in the UK is now the 6th highest in Europe, behind only Germany, Greece, Italy, the Netherlands and Finland, analysis from the Association of British Insurers (ABI) shows.

In Wednesday’s Autumn Statement, the Chancellor claimed that, ‘Insurance premium tax in this country is lower than in many other European countries’.

However, based on latest European insurance industry data*, the UK had the 8th highest IPT standard rate in the EU prior to the Autumn Statement announcement, putting it in the top third.

The recently announced increase from 10% to 12% has put the UK in 6th, above Austria and Malta for the first time. The UK also has a higher rate of 20% for Travel, Hire Car and Extended Warranty insurance.

Further analysis of the Autumn Statement** shows that IPT is now due to raise more than Wine, Sprits, Beer and Air Passenger Duty, with the total raised from IPT reaching £6 billion a year by 2018/19.

Director General of the ABI Huw Evans said, “UK consumers and businesses already pay relatively high levels of IPT, and the latest increase puts us even closer to the top of the table in Europe. It cannot be right that people are being forced to pay an increasingly high price for doing the responsible thing and buying insurance. Nor can it be fair that insurance customers are bearing the brunt of recent increases while the ‘sin taxes’ like wine, spirits and gambling are unaffected.

“Having now increased IPT three times in 18 months, it is time for Government to look elsewhere to help meet the formidable fiscal challenges it faces.”

Insurance Premium Tax affects all motor, home, travel and health insurance policies whether personal or business. Unlike VAT, businesses can’t claim back IPT.

Increasing IPT from 6% to 12% raises around £13 billion over 5 years, making it one of the biggest revenue raising measures in recent fiscal events.

*Insurance Europe, ‘Indirect Taxation on insurance contracts in Europe 2016

**see Table C5: Current Receipts here


Insurance Premium Tax Increase Will Affect 3 Million Private Medical Insurance Policies

The standard rate of Insurance Premium Tax - the tax paid each time an insurance policy is purchased in the UK – rose from 6% to 9.5% on the 1st November 2015.

This change will affect:

  • 7.3 million car policies
  • 4.7 million household policies
  • 3 million pet policies
  • 3 million private medical insurance policies

Any of the affected insurance policies with a start date after 31 October will have IPT charged at the new rate. This is likely to add the following to premiums:

  • Nearly £13 to the average comprehensive motor insurance policy
  • More than £10 to the average combined building and contents cover.
  • More than £10 to average pet insurance
  • More than £40 to average private medical insurance

The Government exempts the following products from IPT:

  • Life insurance
  • Mortgage insurance
  • Insurance for spacecraft
  • Commercial ships and aircraft
  • International railway rolling stock
  • Lifeboats and lifeboat equipment
  • Goods in international transit

Higher rate IPT remains unchanged at 20% and applies to:

  • travel insurance
  • warranties for some mechanical and electrical goods

This means that a family with two cars, a pet and medical insurance is likely to have to pay almost £100 a year more.

James Dalton, Director of General Insurance Policy at the ABI, said, "Whether you are a homeowner, driver, own a pet or buy medical insurance, millions of people across the country face being hit in the pocket by this rise in Insurance Premium Tax. Whether it’s a legal requirement or you want to buy extra cover, insurance is a financial safety net, not a luxury.

"While insurance remains one of the most competitive industries in the UK, its affordability can’t be taken for granted. Further tax increases must be avoided if insurance is to remain accessible for all.”

According to the Treasury the IPT increase will bring in an additional £8.1bn for the Treasury by 2021*. This was the second largest revenue raiser in the Summer Budget.

Insurance Premium Tax was first introduced to the UK in 1994. The rise on 1 November is the 4th increase in the standard rate since its introduction.

  • From 1 October 1994, a single rate of 2.5% was charged
  • 1 April 1997: increased to 4%
  • 1 July 1999: increased to 5%
  • 4 January 2011: increased to 6%
  • 1 November 2015: increased to 9.5%

*This is according to HMRC’s own figures summarising the impact of the move

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