Stephany Swank

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Insurance Premium Tax (IPT) is a tax on general insurance premiums and applies to types of insurance, such as home insurance, landlord insurance, car insurance, and pet insurance. You can get two different rates of IPT: a standard rate of 12% and a higher rate of 20%, which applies to, electrical appliance insurance, travel insurance and some vehicle insurance. It is paid for by the policyholder but collected and paid to HMRC by the insurer.

In this guide, we look at the background of IPT, how it works, how it is calculated, how it’s increased over the years and the insurances that are exempt from IPT.

IPT was introduced in October 1994 at a single rate of 2.5%.

In January 1973, the UK joined the European Economic Community (EEC), and as a member nation was required to adopt VAT into the taxation system. However, insurance premiums are not subject to VAT; so, in 1994, the Government introduced Insurance Premium Tax.

In 1997, the standard rate of IPT rose to 4%, and a higher rate of 17.5% was also introduced. Over the years IPT rates have fluctuated and at present they stand at 12% (standard rate) and a 20% higher rate (more details below).

The higher rate was brought in line with the VAT rate to discourage the practice of manipulating the combined sale of products and insurance, whereby an exaggerated portion of the sale might be attributed to an insurance policy for the sake of a lower tax rate.

Insurance tax premium creates revenue for the UK Government. When a customer pays their insurance premium, the insurance providers must pass tax to directly to the government. IPT is currently either 12% or 20%.

Insurance tax premium is a compulsory tax that insurance companies or insurance brokers must pay.  Historically, IPT is added to customers’ premiums and any increases in IPT will directly affect the price they customer pay.

No, IPT is a one-off tax on a single product. In this respect, IPT has more in common with tobacco duty. VAT, on the other hand, is passed from seller to buyer until it reaches the end user who pays a tax on the cumulative elements of a product or service.

Unlike VAT, Insurance Premium Tax cannot be claimed back.

The tax on an insurance policy is calculated as a percentage of the premium: 12% standard rate or 20% higher rate. No IPT is due on service fees.

For example, an insurer sells a policy for £400 and charges the customer £70 in service fees. The IPT is either 12% or 20% of £400, so the policyholder would pay either £48 (basic rate) or £80 (higher rate).

Policies that are subject to the higher rate of IPT fall into two categories. The first is travel insurance. The second is insurance sold in relation to certain goods, when the insurance and the products are sold by, or through, the same person or entity.

These goods are:

For example, if you buy a car, and you insure it through the person or business who sold you the car, the insurance policy will be subject to the higher IPT rate. However, if you buy your insurance policy from a different company, you’ll be charged the standard rate of IPT.

IPT rate:

When the IPT rate rises, insurers will sometimes lower their prices so that customers aren’t put off by a sudden increase. IPT must still be paid, though. It’s not unusual for insurers to reduce their own income for the sake of retaining customer goodwill. But that’s not always the case, and the increase could well be passed on to the customer.

Not all insurance policies are subject to IPT.

Exemptions include:

Tax on goods and services generate income which is an important element of public funds. Most of these goods and services generate funds through VAT or “sin” taxes (such as tobacco, alcohol, gambling). Insurance is a huge sector that generates billions of pounds a year in IPT for the public purse. Without this tax the UK would be poorer and public services would suffer.

It’s the insurance companies’ responsibility to pay IPT and in most cases the tax is passed on to the customer.

There are ways to reduce your insurance premium, which will bring down the amount of IPT you pay. These include; additional security features for your home, car, or IT equipment or increasing your voluntary excess which would mean a lower premium but potentially a high price to pay in the event of a claim.

Paying a premium in monthly instalments is usually a more expensive option than paying it all in one go. So if you can pay your premium annually the overall price will be lower and so will the IPT.

Got a squeaky door that’s driving you crazy every time someone opens or closes it? By applying some specially made lubricant for door hinges, you remove the squeaky noise and ensure the door swings smoothly between an open and shut position.

Before you start using oil for greasing door hinge oil though, there are a few tips you should keep in mind:

When lubricating a door hinge, it’s best to remove the pin first (unless they are high-end ball-bearing hinges like our Embassy hinges, in which case do NOT remove the pin) – you can use a small screwdriver and a hammer to tap the pin out from the bottom of the hinge. With the door closed, address one hinge at a time so the door will stay supported.

Spray some silicone spray on the joints in the two hinge leaves where they meet. Spray a coating onto the pin and tap it back into the door hinge. Add a little more of the solution when you are about halfway through the process. Finish tapping the pin into place, and then repeat this process for the other hinges on the door.

The procedure with door hinge oil is similar. Simply coat the pin with a thin layer of door hinge oil. Put a small dab of grease on the end and tap the pin back into place. When you have addressed all the hinges, open the door and move it back and forth several times to work the door hinge oil in. Repeat the process if the squeak persists.

For door hinge oil, your best option is to use silicone spray or white lithium grease. Silicone is the easiest, but it does not last as long as the grease. When used properly, the mess is minimal.

Remove the hinge pins from the hinge one at a time. Apply the lubricant and replace the pin. When the hinges are lubricated, again work the door back and forth to work the lubricant in. Repeat if the squeaks remain.

Lubricating a rusty door hinge is a good choice when the hinge is still working – door hinge oil will loosen it and quiet it down with a little effort. When a rusty hinge has deeper rust, you may want to start by soaking the hinge with good quality penetrating oil.

Apply the oil liberally, and keep a rag handy to wipe up any excess. Allow the oil to soak in before you try working the hinge. You may want to repeat this step a few times with a badly damaged hinge.

After the penetrating oil has freed up the hinge, you can lubricate it using a silicone spray or white lithium grease. Keep in mind that an old badly rusted hinge may need additional treatments.

Lubricating a rusty door hinge with grease is easier when you remove the pin. Not all pins are removable, especially on older doors. When this happens, use spray silicone or spray penetrating oil and try to get it in every opening of the hinge. Work the door back and forth to work the lubricant down into the hinge.

Another option is to fit the door for a newer style hinge. This will require some carpentry skills, because you need to take the door off and change out the mortises in the door and frame.