What is Insurance Premium Tax?

Any Gap Insurance quote you get from EasyGap will be inclusive of Insurance Premium Tax, but what exactly is it?

We will explain what it is, how it is calculated as well as showing you how you can pay a lower rate, should you buy gap insurance independently.

Insurance Premium Tax

First of all, what exactly is Insurance Premium Tax?

Well, it is a form of tax that must be added to any insurance premium provided in the UK today. The most common form of tax, VAT, is not applicable on insurance, instead, the government requires you to pay IPT (as it is also known) instead.

IPT must be added to your quote and with all vehicle quotations from ourselves, the premium you see has the correct rate of IPT included in the price. If we quote you £100 then that is the price you pay, as IPT is already included in our quotes.

The rate at which IPT is calculated is based on a percentage of the premium price. Independent suppliers such as ourselves are charged at the standard rate of insurance premium tax, this is traditionally a lot lower than VAT, but here is a very important point:

The rate at which IPT is charged can differ, depending if the company quoting you is involved in the sale or provision of the vehicle to you. For example, if the motor dealer who sells you the vehicle also quotes you for Gap Insurance, warranty or any other type of insurance, then the rate of IPT must be charged at the same rate as VAT, currently 20%.

Therefore if you do seek to buy gap insurance from an independent source, such as EasyGap, then as we only charge the standard rate you can immediately make a saving before we even provide a quotation.

You motor dealer may not tell highlight this as a difference, and indeed we believe that many motor dealers do not even realise that there is a legal requirement for the difference, but the taxation saving is one major factor why motor dealer products can seem quite expensive.

Saving on IPT with EasyGap


The tax saving by using an independent broker is just the beginning of the savings you can make. A motor dealer is restricted to selling Gap Insurance to their own customers and so may only present a few hundred policies to the insurer each year. An independent broker such as EasyGap will produce that many sales in just a day or two and so the negotiating power we have with the suppliers of Gap Insurance allows us to gain wholesale discounts.

These cost savings can be passed on to our customers, meaning you can find savings of 80% or more on comparable products between the dealer and a broker.

It's not just all about Insurance Premium Tax, but you can see you can save on IPT by buying away from the motor dealer.