IPT at the standard rate applies to most general insurance, including property, motor and medical insurance. Higher rate IPT applies to travel insurance and to extended warranty insurance sold alongside motor vehicles and certain consumer goods, which was introduced in 1997 to stop perceived VAT avoidance through value-shifting between goods (subject to VAT) and related insurance (exempt from VAT).

Following the enactment of the Finance (No.2) Act 2010, the rates will increase from 4 January 2011 from 5% to 6% for the standard rate and from 17.5% to 20% for the higher rate (in the latter case, to match the new rate of VAT).

The Government has also introduced a new anti-avoidance rule that will apply when a transfer of a business avoids the rules for non-profit funds with unrecognised profits. The new rule will operate where a life insurance business is transferred from one company to another and will prevent manipulation to avoid tax on previously unrecognised profits. HMRC intend to consult more widely with the insurance industry to ensure that the final legislation is targeted.