Motorists to pay extra as a result of ‘stealth’ insurance tax increase

Car with money

Some 30 million motorists will see their premiums rise by £386 million a year, or £12.80 each, as a result of the increased Insurance Premium Tax (IPT) that comes into effect this weekend.

The tax on insurance premiums is rising by more than half, from 6% to 9.5%, with the average car insurance policy costing £367. Younger drivers will be the worst affected, as the average premium for drivers aged 18-20 is £972 and the tax rise will add £34 to a premium of this size.

IPT is levied on several types of insurance. The RAC, which compiled the figures, say motorists will be hit hard as car insurance accounted for a fifth of the £3 billion tax charged on insurance premiums in 2014.

RAC Insurance director Mark Godfrey said: “Insurance is – rightly – mandatory for anyone getting behind the wheel. The 3.5% hike in IPT is another stealth tax like fuel duty that has unreasonably added to the already considerable contribution made to the Treasury by motorists.

“With insurance premiums currently going up faster than they have in the last five years, it’s sadly going to be a double whammy of bad news for the motorist.

How much tax do motorists pay?

According to the RAC, motorists paid some £39.2 billion in driving-related taxes in 2014. That breaks down as follows.

  • Fuel duty: Charged at 57.95p a litre. The total tax take in 2014 was £26.4 billion.
  • VAT on fuel: Levied at 20%. Drivers pay £6.3 billion a year.
  • Vehicle Excise Duty: Charged based on a vehicle’s CO2 emissions. The tax bill for this was £5.9 billion in 2014.
  • Insurance premium tax: Raised £624 million in 2014, and is expected to cost drivers more than a billion after the rate rises to 9.5%


Who else will pay more IPT?

IPT is charged on car insurance, home insurance, pet insurance and private medical insurance. A higher 20% rate is charged on travel insurance and some electrical warranties. This will not change.

Some insurance policies are exempt from IPT, including life insurance, mortgage insurance and spacecraft! 

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Your Comments

What is the point in my buying a 0 road tax car for financial and environmental reasons then having to lose that advantage by paying increased car tax? This especially annoys me as I am a pensioner and I bought the vehicle this year being especially pleased it was in a lower tax group.   What a nonsense all this continues to be; giving with a small hand and taking with a large hand.