The higher rate of 20% (increased from 17.5% from 4 January 2011) was introduced with effect from 1 April 1997 to address perceived value shifting, where insurance is sold with goods and services liable to VAT at the standard rate. It was argued by HMRC that suppliers in certain sectors were reducing the cost of goods and services subject to VAT at 17.5% with a corresponding increase in the insurance premium, which was subject to the standard rate of IPT.
The higher rate was initially applied to certain premiums for insurance contracts relating to the following1:
• supplies of motor cars or motorcycles
• supplies of domestic appliances
• certain forms of travel insurance
With effect from 1 August 1998 the higher rate was extended to all travel insurance2.
A premium for an insurance contract relating to a motor car or motorcycle is subject to the higher rate of IPT3 if:
(1) the insurance is arranged
Web page updated on 17 Mar 2025 14:26
