Insurance Premium tax, or IPT is a tax levied on Gap Insurance, and all other insurance policies sold in the UK. In all insurance premiums, IPT must be included in the price charged. In terms of Gap Insurance, the rate of Insurance Premium Tax charged is different depending on where you source the policy from.
How much is Insurance Premium Tax?
Insurance Premium Tax charged on dealer Gap Insurance Policies is currently 20%, an increase from 17.5% from the 4th January 2011.
Insurance Premium Tax charged on independently sourced Gap Insurance policies online, is only 6%, an increase of 5% from 4th january 2011.
So why is Insurance Premium Tax cheaper online?
Why the discrepancy? Well it is just the way the Government works, the dealer is involved with the sale of the item for which the policy is sought, and therefore the rate of IPT is higher.
This is a contributory factor as to why dealer premiums for Gap Insurance cover is higher, although it is not the only factor!
We have discussed why dealers charge more for gap insurance on this site before, and the higher rate of Insurance Premium Tax can make some difference. Also, higher supply prices from the insurer, and higher overheads means a greater profit expectation are other factors.
The dealers often justify the online brokers prices being so much cheaper as meaning the gap insurance cover offered is somehow different. However, it is often the case that the underwriting insurers are exactly the same, the dealers just cannot compete with online brokers.
Remember, have a good look through any policy you are offered, and check out all the relevant parties on the FSA website. You will also have a ‘cooling off’ period with any insurance policy, so do not dispair if you buy in haste and fins a better deal!
Sourcing a suitable policy online is certainly the tax efficient way of buy Gap Insurance, less insurance premium tax you will pay online!