Insurance Premium Tax: What Every Car Buyer Should Know
Description
Insurance Premium Tax (IPT) is a hidden cost applied to car insurance products that varies depending on where you purchase them, with dealer-arranged products typically costing 8% more in tax than those bought directly from insurers or independent brokers. This tax difference can significantly impact the total cost of vehicle ownership, yet most consumers remain unaware of this variation or how it affects their purchase decisions.
• IPT is charged at 12% when buying insurance from independent brokers or directly from insurers
• Dealer-arranged insurance typically attracts 20% IPT, except for standard car insurance and financial GAP insurance
• IPT has gradually increased from 2.5% when introduced in 1993 to the current 12% standard rate
• "Free" dealer insurance often leads to attempts to convert customers to full policies, potentially costing drivers up to £2,000 more
• All insurance policies can be cancelled within 14 days for a full refund (minus possible cancellation fees)
• Modern cars already have robust paint protection, making dealer add-ons often unnecessary
• Consider practical coverage like breakdown recovery, especially after manufacturer coverage expires
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