As the name implies, insurance premium tax applies only to insurance companies and insurance brokers that sell insurance products that can be taxable. The law expressly states which of the insurance products that can be taxed and which of them that cannot be taxed. It also states explicitly the kind of rates that should be applied in payment of these taxes. Ordinarily, like any other kind of tax, there are some aspects of insurance under which the premiums that accrue to the insurance brokers or insurance companies are stipulated by law to be exempted from paying the tax imposed or applied on such premiums generated.

The rates for insurance are not just charged arbitrarily. The rates are expressly stated by law and all insurance guidelines and protocols that it makes it difficult to claim ignorance of such laws. There are two basic types of insurance premium tax rates which are applied on insurance premiums that insurance organizations receive from their clientele. The different insurance premium tax rates are standard rate and a higher rate. The standard rate is just five (5) percent of the insurance premium that accrues to the insurance organization. The higher rate is about seventeen and a half percent (17.5) of the insurance premium that is received for a specified period of time. The rates are usually reviewed when it becomes obvious that certain economic considerations are no longer what they used to be. When such situations become apparent, the tax authorities come together to propose new rates according to available data and the send send such reviews to the parliament for ratification before implementing them.

There have been a series of changes in insurance premium tax rates. Over the years, there have been a series of changes in insurance tax rates. The standard rate used to be as small as two and a half percent (2.5%). This has increased over the years and it has doubled over the years to five percent (5%) presently.  The higher rate also increased from as little as four percent (4%) to about seventeen and a half (17.5%) presently. Several factors have influenced the decisions to change the rates over the years, but in as much as the rates have increased over the years, they do not apply to every kind of premium received.  There are insurance premiums that are exempted from paying insurance premium tax.

There are quite a lot of insurance types that are exempted from paying insurance premium tax. There are several reasons why most of these insurance types are tax exempt. However, the most paramount of them is that most social services like healthcare or medical insurance are usually tax exempted. One of such exemptions are insurance products that are considered long term like life insurance and permanent health insurance. Other forms of insurance products that are also under exemption list include commercial aircraft insurance, commercial ships and life boat insurance, export finance, insurance on commercial goods in transit, insurance for risks outside of United Kingdom and insurance on international railway rolling stocks.