What Is Insurance Premium Tax (IPT) Impact on Health Insurance Costs in 2026
As an FCA-authorised expert broker that has helped arrange over 900,000 policies, WeCovr understands the factors affecting the cost of private medical insurance in the UK. One significant but often overlooked element is Insurance Premium Tax (IPT), a levy that directly impacts how much you pay for your health cover.
Neutral overview of IPT, debates over exemptions, rates for different insurance types, and effect on premiums this year
Insurance Premium Tax, or IPT, is a tax on general insurance premiums, including private medical insurance (PMI). Think of it as being similar to VAT, but for insurance products. While you may not always see it itemised on your quote, it is built into the final price you pay.
In 2025, the standard rate of IPT remains at 12%. This tax has a direct and significant effect on the affordability of health insurance for individuals, families, and businesses across the UK. There is an ongoing and vigorous debate about whether health insurance should be exempt from this tax, with compelling arguments on both sides. This article will break down exactly what IPT is, how it affects your policy, the different rates that apply, and the discussions surrounding its fairness and economic impact.
What Exactly Is Insurance Premium Tax (IPT)?
At its simplest, Insurance Premium Tax (IPT) is a tax charged by the UK government on premiums paid to insurers. It was introduced in 1994 as a way to raise revenue from the insurance sector.
Here’s how it works in practice:
- You buy an insurance policy: This could be for your car, home, pet, or your health.
- The insurer calculates the premium: This is the base cost of your cover, based on risk factors like your age, health, and the level of cover you choose.
- IPT is added: The insurer then adds IPT at the standard rate on top of this premium.
- The insurer pays the tax: The insurer collects the total amount from you and pays the IPT portion to His Majesty's Revenue and Customs (HMRC).
Many people refer to IPT as a "stealth tax" because, unlike VAT which is usually shown separately, IPT is often bundled into the total price you are quoted. This means you could be paying hundreds of pounds in tax each year without realising the exact amount. It is a tax on insurers, but in reality, the cost is almost always passed on directly to you, the policyholder.
The Current IPT Rate for Health Insurance in 2026
For 2025, the standard rate of Insurance Premium Tax applied to private medical insurance in the UK is 12%.
This rate applies to most general insurance policies, but it's not the only rate. There are two main bands of IPT:
- Standard Rate (12%): This applies to the majority of insurance policies, including private health cover, car, home, and pet insurance.
- Higher Rate (20%): This is applied to insurance sold with certain goods and services, such as travel insurance, mechanical breakdown insurance for electrical goods, and some motor vehicle insurance sold through car dealerships.
Here is a simple table to illustrate where different types of insurance fall:
| Insurance Type | Applicable IPT Rate in 2025 |
|---|---|
| Private Medical Insurance | 12% (Standard Rate) |
| Car Insurance | 12% (Standard Rate) |
| Home Insurance | 12% (Standard Rate) |
| Pet Insurance | 12% (Standard Rate) |
| Travel Insurance | 20% (Higher Rate) |
| Mobile Phone Insurance | 20% (Higher Rate) |
| Extended Warranties (e.g., for a new TV) | 20% (Higher Rate) |
A few types of insurance are exempt from IPT altogether, such as life insurance, mortgage insurance, and certain commercial ship and aircraft policies. However, for the average consumer, most policies you buy will include the 12% standard rate.
How IPT Directly Affects Your Health Insurance Premium
The 12% IPT rate directly inflates the cost of your private medical insurance. For every £100 of your base premium, you pay an additional £12 in tax. Over the course of a year, this adds up significantly.
Let's look at a practical example. Imagine your insurer calculates your annual premium to be £1,200 based on your age, location, and desired cover level.
- Base Premium: £1,200
- IPT at 12%: £1,200 x 0.12 = £144
- Total You Pay: £1,200 + £144 = £1,344
In this scenario, you are paying £144 directly to the government, simply for having health insurance.
The impact becomes even more pronounced as premiums rise, whether due to age, a claim, or general medical inflation.
The Compounding Effect of IPT
A key issue is that IPT is a percentage. This means that any increase in your base premium also leads to an increase in the amount of tax you pay.
For instance, if your base premium rises by 10% next year due to age and medical inflation (from £1,200 to £1,320):
- New Base Premium: £1,320
- New IPT at 12%: £1,320 x 0.12 = £158.40
- New Total You Pay: £1,320 + £158.40 = £1,478.40
Your premium increased by £120, but the tax you pay also increased by £14.40. This compounding effect makes health insurance progressively more expensive over time.
Here’s a table showing the impact of IPT on various annual premium amounts:
| Annual Base Premium | IPT Amount (12%) | Total Annual Cost | Equivalent Monthly Cost |
|---|---|---|---|
| £600 | £72 | £672 | £56.00 |
| £1,000 | £120 | £1,120 | £93.33 |
| £1,500 | £180 | £1,680 | £140.00 |
| £2,500 | £300 | £3,000 | £250.00 |
| £4,000 | £480 | £4,480 | £373.33 |
As you can see, for a family or an older individual with a higher premium, the annual cost of IPT can easily run into many hundreds of pounds.
A Brief History of IPT Increases
To understand the current debate, it helps to see how the standard rate of IPT has changed over the years. It was not always 12%.
- October 1994: IPT is introduced at a single rate of 2.5%.
- April 1997: The rate is increased to 4%.
- July 1999: The rate increases again to 5%.
- January 2011: After more than a decade of stability, the rate goes up to 6%.
- November 2015: A significant jump to 9.5%.
- October 2016: The rate is increased to 10%.
- June 2017: The rate is increased to its current level of 12%.
This timeline shows that the tax has more than quadrupled since it was first introduced. The rapid succession of increases between 2015 and 2017 caused significant concern within the insurance industry and among consumers, who saw their premiums rise sharply as a direct result.
The Great Debate: Should Health Insurance Be Exempt from IPT?
The 12% tax on private health insurance is a major point of contention. Industry bodies, health charities, and consumer groups have long campaigned for it to be reduced or removed entirely for health-related insurance products. The government, however, has consistently resisted these calls.
Here are the main arguments from both sides.
Arguments for Exempting or Reducing IPT on Health Insurance
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It's a "Tax on Health": Opponents argue that taxing a product designed to protect people's health is counterintuitive. They claim it penalises individuals and businesses for taking proactive steps to manage their healthcare needs. It's effectively a tax on being responsible.
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It Reduces the Burden on the NHS: Every person who uses private healthcare for an eligible condition is one less person in an NHS queue. By making PMI more affordable, more people might opt for it. This could free up NHS resources, reduce waiting lists, and allow the public system to focus on those who need it most. According to NHS England statistics, the waiting list for consultant-led elective care stood at over 7.5 million in mid-2024, highlighting the immense pressure on the service.
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It Would Increase Uptake: A reduction or removal of IPT would make premiums cheaper overnight. The Association of British Insurers (ABI) has previously suggested that scrapping IPT on PMI could lead to a significant increase in policyholders. This would benefit not only the individuals but the entire healthcare ecosystem.
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It Encourages a Proactive Approach to Wellness: Many modern PMI policies include benefits that encourage a healthy lifestyle, such as gym discounts, mental health support, and digital GP services. Taxing these policies seems to work against the wider public health goal of promoting preventative care.
The Government's Stance: Arguments Against an Exemption
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Significant Revenue Generation: IPT is a major source of income for the Treasury. According to HMRC's own statistics, IPT receipts were approximately £8.2 billion in the 2023-24 tax year. Carving out an exemption for health insurance would create a substantial hole in public finances that would need to be filled from other sources.
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Complexity and "Opening the Floodgates": Creating specific exemptions makes the tax system more complex. The government's concern is that if it grants an exemption for health insurance, it will face intense pressure to do the same for other "socially useful" types of insurance, such as home insurance (protecting against homelessness) or income protection (reducing reliance on state benefits).
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It's a Tax on Insurers, Not People (in theory): The official line is that IPT is a tax levied on insurance companies. While acknowledging that it's passed on to customers, the government frames it as part of the cost of doing business for insurers.
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Risk of Insurers Not Passing on the Full Saving: There is a concern that if IPT were cut, insurers might not pass the full 12% saving on to customers, instead using it to bolster their own profit margins. However, the UK's highly competitive private medical insurance market would likely ensure that savings are passed on as providers vie for customers.
An expert PMI broker like WeCovr can help you navigate these costs and find a policy that delivers maximum value, despite the impact of IPT.
A Crucial Reminder: What UK PMI Does Not Cover
It is absolutely vital for anyone considering private medical insurance in the UK to understand its primary purpose. Standard PMI policies are designed to cover acute conditions that arise after you take out your policy.
- An acute condition is a disease, illness, or injury that is likely to respond quickly to treatment and lead to a full recovery (e.g., joint replacement, cataract surgery, cancer treatment).
What is not covered?
- Pre-existing Conditions: Any medical condition you had symptoms of, received advice for, or were treated for before your policy began will not be covered.
- Chronic Conditions: Long-term conditions that cannot be cured, only managed, are excluded. This includes illnesses like diabetes, asthma, high blood pressure, and many types of arthritis. Day-to-day management of these conditions will always remain with the NHS.
Understanding this distinction is the single most important step in avoiding disappointment with a PMI policy. It is designed for new, treatable conditions, providing you with faster access to specialists and private facilities.
Strategies to Manage Your Health Insurance Costs in 2026
While you cannot avoid IPT, there are several effective strategies you can use to lower your overall premium, which in turn reduces the amount of tax you pay.
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Speak to an Independent Broker: This is the most effective first step. A specialist broker like WeCovr has access to policies from across the market. We can compare different providers and cover levels to find the best fit for your needs and budget. Our service is free to you, as we are paid a commission by the insurer you choose.
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Adjust Your Underwriting:
- Moratorium Underwriting: You don't declare your full medical history upfront. Instead, the insurer excludes treatment for any condition you've had in the last 5 years. This can sometimes be cheaper.
- Full Medical Underwriting: You declare your full history. The insurer may apply specific exclusions, but everything else is covered from day one.
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Increase Your Excess: The excess is the amount you agree to pay towards the first claim you make in a policy year. Increasing your excess from £100 to £500, for example, can reduce your premium by as much as 20-30%.
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Choose a "Guided" or "Expert Select" Option: Many insurers now offer plans where you are given a choice from a smaller, curated list of consultants or hospitals. This cost-containment measure for the insurer is passed on to you as a lower premium.
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Consider a 6-Week Wait Option: This popular option can significantly cut costs. With this feature, if the NHS can treat you for an eligible condition within six weeks of the recommended treatment date, you will use the NHS. If the NHS waiting list is longer than six weeks, your private cover kicks in.
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Take Advantage of Wellness Programmes: Many providers reward healthy living. By engaging with these programmes—tracking your activity, getting health checks, or improving your diet—you can earn points that lead to lower renewal premiums. As a WeCovr customer, you get complimentary access to our CalorieHero AI calorie tracking app, helping you stay on top of your nutrition goals.
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Bundle Your Insurance: When you purchase PMI or Life Insurance through WeCovr, you may be eligible for discounts on other types of cover you need, such as home or travel insurance, offering further savings.
The Outlook for IPT in 2026 and Beyond
As of late 2024 and heading into 2025, there have been no firm commitments from the UK government to reduce or abolish the 12% IPT rate on private health insurance. It remains a stable and significant source of tax revenue.
However, the pressure from industry groups and health experts is relentless. With NHS waiting lists remaining a major public and political concern, the argument that a more accessible private sector can act as a vital "safety valve" is gaining traction. Any future government looking for ways to improve healthcare efficiency without direct public spending may be forced to reconsider the "tax on health".
For now, consumers and businesses should budget for the 12% rate to continue. The best strategy is not to wait for a tax cut, but to be proactive in managing your policy costs by working with an expert to ensure you have the most cost-effective cover for your needs. WeCovr's team of specialists is dedicated to helping clients find the right private medical insurance in the UK, providing clarity on all costs, including the impact of IPT.
What is the current Insurance Premium Tax (IPT) rate for private health insurance in the UK?
Why is health insurance taxed when it can reduce the burden on the NHS?
Can I avoid paying IPT on my health insurance?
Is IPT shown on my health insurance documents?
Finding the right health cover can be complex, but you don't have to do it alone. At WeCovr, our FCA-regulated experts provide friendly, no-obligation advice to help you compare the market and secure the best private health cover for your unique situation.
Related guides
Why private medical insurance and how does it work?
What is Private Medical Insurance?
Private medical insurance (PMI) is a type of health insurance that provides access to private healthcare services in the UK. It covers the cost of private medical treatment, allowing you to bypass NHS waiting lists and receive faster, more convenient care.How does it work?
Private medical insurance works by paying for your private healthcare costs. When you need treatment, you can choose to go private and your insurance will cover the costs, subject to your policy terms and conditions. This can include:• Private consultations with specialists
• Private hospital treatment and surgery
• Diagnostic tests and scans
• Physiotherapy and rehabilitation
• Mental health treatment
Your premium depends on factors like your age, health, occupation, and the level of cover you choose. Most policies offer different levels of cover, from basic to comprehensive, allowing you to tailor the policy to your needs and budget.
Questions to ask yourself regarding private medical insurance
Just ask yourself:👉 Are you concerned about NHS waiting times for treatment?
👉 Would you prefer to choose your own consultant and hospital?
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👉 Would you like private hospital accommodation and better food?
👉 Do you want to avoid the stress of NHS waiting lists?
Many people don't realise that private medical insurance is more affordable than they think, especially when you consider the value of faster treatment and better facilities. A great insurance policy can provide peace of mind and ensure you receive the care you need when you need it.
Benefits offered by private medical insurance
Private medical insurance provides numerous benefits that can significantly improve your healthcare experience and outcomes:Faster Access to Treatment
One of the biggest advantages is avoiding NHS waiting lists. While the NHS provides excellent care, waiting times can be lengthy. With private medical insurance, you can often receive treatment within days or weeks rather than months.
Choice of Consultant and Hospital
You can choose your preferred consultant and hospital, giving you more control over your healthcare journey. This is particularly important for complex treatments where you want a specific specialist.
Better Facilities and Accommodation
Private hospitals typically offer superior facilities, including private rooms, better food, and more comfortable surroundings. This can make your recovery more pleasant and potentially faster.
Advanced Treatments
Private medical insurance often covers treatments and medications not available on the NHS, giving you access to the latest medical advances and technologies.
Mental Health Support
Many policies include comprehensive mental health coverage, providing faster access to therapy and psychiatric care when needed.
Tax Benefits for Business Owners
If you're self-employed or a business owner, private medical insurance premiums can be tax-deductible, making it a cost-effective way to protect your health and your business.
Peace of Mind
Knowing you have access to private healthcare when you need it provides invaluable peace of mind, especially for those with ongoing health conditions or concerns about NHS capacity.
Private medical insurance is particularly valuable for those who want to take control of their healthcare journey and ensure they receive the best possible treatment when they need it most.
Important Fact!
We can look at a more suitable option mid-term!
Why is it important to get private medical insurance early?
👉 Many people are very thankful that they had their private medical insurance cover in place before running into some serious health issues. Private medical insurance is as important as life insurance for protecting your family's finances.👉 We insure our cars, houses, and even our phones! Yet our health is the most precious thing we have.
Easily one of the most important insurance purchases an individual or family can make in their lifetime, the decision to buy private medical insurance can be made much simpler with the help of FCA-authorised advisers. They are the specialists who do the searching and analysis helping people choose between various types of private medical insurance policies available in the market, including different levels of cover and policy types most suitable to the client's individual circumstances.
It certainly won't do any harm if you speak with one of our experienced insurance experts who are passionate about advising people on financial matters related to private medical insurance and are keen to provide you with a free consultation.
You can discuss with them in detail what affordable private medical insurance plan for the necessary peace of mind they would recommend! WeCovr works with some of the best advisers in the market.
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