Having previously been exempt, electric car owners will now be expected to fork out an additional tax as the luxury vehicle tax is introduced to the environmentally friendly vehicles
Drivers could be faced with a new ‘luxury’ car tax which will leave them around £2,000 out of pocket next year.
Contrary to the move towards net-zero, electric cars are the main target in the new tax introduced by Chancellor of the Exchequer Rachel Reeves. Drivers could face a new £2,125 luxury vehicle tax from the beginning of the new tax year in April. Named the expensive car supplement, the tax will be applied to all electric cars priced at £40,000 or above.
Previously, electric cars were exempt from the tax as it only applied to fuel-powered cars. This was to encourage drivers to use a more environmentally mindful vehicles, but has now been taken away.
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The exemption was first introduced in 2020 but plans to re-introduce has been moved forward. Reeves’ policy was announced during her new budget, which outlined a rise in motoring taxes to make up the financial shortfall.
Currently, there are just under 1,300,000 fully electric cars in the UK. 67% (around 800,000) of those are affected by the new policy.
It’s not all bad news for electric car owners, however, as they will still pay lower standard road tax rates than petrol cars. The luxury supplement is only for cars above £40,000 and will hit the majority of new EVs due to their typically higher purchase prices.
A 2025 Vauxhall Corsa Design Electric Propulsion (136PS) AT is currently priced around £28,090. The most popular electric car in the UK is, perhaps unsurprisingly, The Tesla Model 3, according to Mur UK. These will be affected by the new tax, as it currently retails from £39,990 to £59,990.
The £425 annual surcharge must be paid between the second and sixth years of a car’s lifespan, totalling £2,125 over the period. This still applies if another driver takes the car.
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Not only that, electric car owners will begin seeing a higher road tax rate. They will be paying £10 in traditional road tax for their first year, followed by a standard yearly rate of £190 thereafter.
Previously, they were completely exempt from road tax, also known as Vehicle Excise Duty. Auto Trader figures revealed that plenty of electric vehicles exceed the £40,000 price, meaning around 87,1000 individuals will now be forced to pay the tax.
The £40,000 threshold figure is based on a car’s list price including optional extras. Any discounts made at the salesroom will not be included. Reports say that if the threshold rose with inflation since its 2017 introduction, it would now stand at £51,827.
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