Drivers opting for electric vehicles (EVs) are now three times more likely to be hit by the luxury car tax, according to new figures. This change, effective from April 1st, has sparked concerns within the automotive industry that it could discourage the transition to electric motoring.
Online vehicle marketplace Auto Trader conducted the research. They have called for a delay in the overhaul of vehicle excise duty (VED), citing the risk of deterring potential EV buyers. From April 1st, the Treasury will end VED exemptions for EVs. This means EV owners will pay at least the standard rate, which is set at £195 per year for the second year onward after the vehicle is registered.
Adding to this, the ‘luxury car tax’ will apply to vehicles registered after April 1st with a list price exceeding £40,000. This supplement adds £425 annually for years two to six after registration. These changes were initially announced in November 2022 by then-chancellor Jeremy Hunt under the Conservative government, who aimed to make the motoring tax system more equitable. This policy continues under the Labour Government.
The higher price of many EVs, largely due to the cost of battery production, contributes to this situation. Auto Trader’s data reveals that 56% of EVs up to five years old listed on its site have a list price above £40,000. For petrol or diesel cars in the same age range, this figure is significantly lower, at 16%.
Ian Plummer, commercial director of Auto Trader, expressed concern that these changes provide “additional reasons not to make the switch” to electric motoring. He stated, “Despite the more uncertain global climate, it makes sense to delay these duty increases to ward off the risk of harming attitudes towards EVs for the sake of a marginal gain in revenues for the Treasury.” He further noted that EVs on their site are three and a half times more likely to incur the luxury car supplement than internal combustion engine cars of the same age, which he called “unhelpful for efforts to persuade drivers to switch.”
The government has set a zero-emission vehicle mandate, which requires at least 28% of new cars sold by each UK manufacturer in 2025 to be zero-emission vehicles, typically all-electric. Pure electric cars held 25.3% of the market share in February. Failure to meet the mandate or utilize flexibilities – such as purchasing credits or increasing sales in subsequent years – will result in a fine of £15,000 per polluting car sold above the limits.
The government is currently reviewing feedback from a consultation regarding proposed changes to these rules, which could include allowing non-compliant manufacturers more ways to avoid fines. Steve Gooding, director of the RAC Foundation, suggested that the Treasury views people spending over £40,000 on a car as capable of paying more tax. However, he questioned whether this logic applies to used car purchases, whose values depreciate rapidly. He added that the luxury car supplement could have an unintended and “perverse impact” by making used EVs less attractive, which undermines the push to decarbonize motoring.
Quentin Willson, founder of Fair Charge and advisory board member of EVUK, both pro-EV groups, strongly criticized the luxury car supplement. “Six hundred and twenty pounds a year to tax most EVs will discourage private buyers who get no incentive whatsoever to switch from combustion to electric,” he stated. He further expressed concerns that the government appears to be making it harder to switch to EVs. “Ministers say we should drive EVs, while the Treasury creates tax barriers to put us off. This isn’t intelligent policymaking in action.”
A Treasury spokesman responded by saying, “The shift to electric vehicles will support growth and productivity across the UK and is crucial for tackling climate change.” They added that the government’s approach “ensures fiscal stability during the transition to electric vehicles, including by introducing vehicle excise duty on EVs from April 2025, while maintaining targeted incentives to encourage their uptake.”
