Insurance premium tax
Produced in partnership with Philip Simpson QC of Old Square Tax Chambers and Terra Firma Chambers

The following Tax practice note produced in partnership with Philip Simpson QC of Old Square Tax Chambers and Terra Firma Chambers provides comprehensive and up to date legal information covering:

  • Insurance premium tax
  • Legislation and guidance
  • How IPT works
  • Taxable insurance contract
  • Contracts exempt from IPT
  • Premiums/Contracts liable to the higher rate of IPT
  • When higher rate contracts become standard-rate contracts
  • Insurer and taxable intermediary
  • Insurer
  • Taxable intermediary
  • More...

Insurance premium tax

FORTHCOMING CHANGE: HMRC is consulting on measures intended to improve the operation of IPT and to make it easier for both the industry and HMRC to administer. The consultation does not consider the rates of IPT or the exemptions. For more information on the consultation, see: Tax weekly highlights—12 November 2020—HMRC publishes consultation on IPT administration and unfair outcomes.

Insurance premium tax (IPT) is an indirect tax on insurance premiums.

Unless an insurance contract is exempt, IPT is charged as a percentage of the premium paid on certain types of insurance policies issued by certain types of insurers covering risks located in the United Kingdom. It is borne by the policyholder but collected and paid to HMRC by the insurer by reference to three-month-long accounting periods.

Technically, since the legislation defines a premium to include IPT, IPT is imposed on an amount defined as the chargeable amount. The premium is the sum of the chargeable amount and the IPT. For more information on the statutory meaning of a premium for IPT purposes, see: Premium below.

IPT is chargeable at the standard rate of 12% unless the premium is liable to tax at the higher rate of 20%.

Legislation and guidance

The main sources of legislation are:

  1. the Finance Act 1994 (FA 1994), and

  2. the Insurance Premium Tax Regulations 1994, SI 1994/1774 (IPT Regs)

These are supplemented by HMRC guidance

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