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:
Domestic appliances.
Cars, vans, and motorcycles.
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.