'The luxury car tax': A counter-productive cash grab

Most normal EVs now cost over £40,000, making ‘luxury car tax’ another burden on everyday buyers, says Stuart Masson

The UK’s so-called ‘luxury car tax’ is unfairly penalising drivers who want to make the switch to electric vehicles (EVs). Under current Vehicle Excise Duty (VED) rules, cars with a list price of more than £40,000 are subject to an additional £410 charge every year for five years – making EV adoption more expensive for many as inflation and rising car prices push more mainstream models above this threshold, and effectively further disincentivising drivers for choosing cleaner, more sustainable transport.

This tax was originally introduced eight years ago to target high-end luxury vehicles, but with eight years of steadily increasing new car prices and no movement on the tax threshold, EVs in particular are being caught by this outdated policy that goes entirely against this government’s desire to see more and more drivers switching to an electric car.

A luxury car tax should not be used to drive up the prices of electric family cars from the likes of Kia, Renault, Skoda or Vauxhall, but that’s exactly what is about to happen.

From April 2025, the government will remove the VED exemption for electric cars, meaning all EV owners will have to pay road tax, with those purchasing models over £40,000 hit hardest. This move risks slowing down EV adoption at a time when the UK should be accelerating towards its net-zero targets.

If the goal is for EVs to make up 80% of all new car sales in the next five years, the government needs to be creating policies to turbocharge new EV sales, not harm them. Both the government and the luxury car tax threshold need to move with the times and reflect market realities.

Increasing sales of new electric family cars is also crucial in the long run. The vast majority of households buy used cars rather than new ones, so we need a larger pool of affordable used EV family cars to help millions more drivers make the switch to electric power. The more new EVs we can put on the roads today, the faster they will filter through to the used car market and make electric driving more affordable for lower-income households as well.

Raising the luxury car tax threshold to £50,000 immediately – and continuing to review it against the new car market each year – will help to make electric driving more affordable for families both today and tomorrow, while still taxing vehicles that can genuinely be considered ‘luxury’.

The Zero Emission Vehicle (ZEV) Mandate and the speed of the transition from fossil-fuel cars to EVs are both government constructs, not purely market-driven trends. That means that the government must do more to support car buyers in making that switch, rather than ordering people to buy EVs and then taxing them for doing so.

For customers looking to buy a new EV that’s likely to be impacted by this tax, we recommend trying to take delivery of your new car before the end of March, or buy a pre-registered one. That way, you’ll beat the tax increase that comes into effect from 1 April – saving you hundreds of pounds this year, and for the next five years as well.

Fortunately, there are still a number of lower-cost EVs that avoid this extra tax. Models like the Kia EV3, which is The Car Expert’s 2025 Car of the Year, or the MG 4, which was our 2024 Car of the Year, still fall below the luxury car tax threshold.

As always, drivers are encouraged to do their research and crunch the numbers. That’s why resources like The Car Expert exist – to help motorists make well-informed decisions about their next vehicle.”

Stuart Masson is editorial director of The Car Expert

Established in 2011, The Car Expert is an automotive consumer advice platform that offers guidance on all aspects of purchasing, financing, owning, and selling both new and used cars.
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