Insurers are stepping up pressure on the government to rethink how insurance premium tax (IPT) is applied to health cover, after receipts hit a record £9.04 billion in 2025/26 on the back of surging demand for private medical insurance (PMI).
The latest HMRC figures show IPT brought in £88 million in March alone, taking the full-year total £157 million above the previous year's £8.88 billion. Receipts are now 174% higher than the £3.29 billion collected in 2015/16, and 43% up on the £6.31 billion recorded five years ago.
The Office for Budget Responsibility expects IPT to raise £57.8 billion between 2025/26 and 2030/31 – a £500 million upgrade on its Autumn Budget forecast, which it has linked to rising demand for health-related cover.
IPT was introduced in 1994 at a single rate of 2.5%. A higher rate followed in 1997. The standard rate has since been raised six times, reaching its current level of 12% in June 2017. The higher rate, which applies to travel insurance and some motor policies, has stood at 20% since 1997. Both rates were left unchanged in last year's Autumn Budget.
PMI falls under the 12% standard band. Unlike VAT, IPT cannot be reclaimed by businesses, meaning employers bear the full cost on group health schemes. Life insurance and long-term care cover are exempt.
Cara Spinks (pictured above), head of life and health at consultancy Broadstone, said the latest receipts showed how central IPT had become to the public purse. "Another record year for IPT receipts reflects how significant this tax has become for the public finances," she said.
She identified PMI as the main engine behind the rise, pointing to pressure on the NHS as both individuals and employers seek faster treatment. PMI penetration reached 14% of UK adults, or 7.6 million people, in 2024, up from 6.7 million in 2020. Employer-funded schemes covered a record 4.7 million people.
"Higher premiums combined with IPT are adding to cost pressures and risk limiting access at precisely the point demand is increasing," Spinks said.
Spinks argued the tax should be aligned with the goals of the Keep Britain Working Review, the independent review led by former John Lewis Partnership chair Sir Charlie Mayfield.
Its final report, published in November last year, set out recommendations to tackle health-driven economic inactivity and has since entered a Vanguard implementation phase backed by a £3.5 billion employment support package.
"A more nuanced approach, aligned with the objectives of the Keep Britain Working Review, could improve access to these products, support employers, and help relieve pressure on public services," she said.
