What’s Changing in UK Car Tax Laws This Year?

What’s Changing in UK Car Tax Laws This Year?

Inflation-Linked Increases for Petrol & Diesel Vehicles

The government has raised VED rates in line with inflation, resulting in higher annual costs for most petrol and diesel car owners. Standard rates for vehicles registered after April 2017 have increased by approximately £10–£20, depending on their CO₂ emissions. This adjustment means drivers of conventional combustion-engine cars will see a noticeable rise in their yearly tax bills.

Revised First-Year Rates

The first-year VED rates, applied when a new car is registered, have also been updated. Vehicles with higher emissions now face steeper upfront costs, with the top band (emitting over 255g/km of CO₂) seeing the most significant hikes. This change aims to discourage the purchase of high-polluting models while encouraging the shift toward cleaner alternatives.

Continued Higher Rates for Luxury Vehicles

Cars with a list price exceeding £40,000 remain subject to the Expensive Car Supplement, costing owners an additional £390 per year for five years (from the second year of registration). Notably, this surcharge now applies to zero-emission vehicles as well, marking a policy shift to ensure premium EVs contribute to road tax revenues.

Stricter Emissions-Based Charges

To further encourage the adoption of low-emission vehicles, the UK has tightened its emissions-based taxation system. Cars emitting over 255g/km of CO₂ will now fall into the highest tax band, resulting in significantly higher first-year VED payments. Furthermore, London’s Ultra Low Emission Zone (ULEZ) has expanded, and other cities are introducing similar clean air zones, meaning non-compliant vehicles will face daily charges.

Electric Vehicle (EV) Incentives and Exemptions

Current Benefits for EV Owners

Zero VED Costs Pure electric vehicles remain fully exempt from Vehicle Excise Duty (road tax) until April 2025, providing significant annual savings compared to petrol or diesel cars. Low Company Car Tax (BiK): EVs still benefit from an ultra-low Benefit-in-Kind (BiK) rate of just 2% (rising slightly to 3% in 2025), making them highly attractive for business users. No Expensive Car Supplement (Until 2025): EVs priced over £40,000 are currently exempt from the £390/year luxury car tax, though this will change in 2025.

Upcoming Changes

VED for EVs Introduced Starting April 2025, new EVs will be subject to the lowest VED band (£10/year for the first year, then standard rate of £180/year thereafter)—still cheaper than most combustion-engine cars but ending the complete exemption. Luxury EV Tax: The £390/year Expensive Car Supplement will apply to EVs with a list price over £40,000, aligning them with other premium vehicles. Gradual Benefit Reductions These changes signal the government’s plan to phase out Electric Vehicle (EV)subsidies as adoption grows, ensuring all road users contribute to maintenance costs as fuel duty revenues decline.

Changes to Luxury Car Tax (Supplement) for Expensive Vehicles

The Expensive Car Supplement, which applies to vehicles with a list price exceeding £40,000, has also been adjusted. Owners of such cars must pay an additional £390 per year for five years (from the second year of registration). This surcharge now also applies to zero-emission vehicles, marking a shift from previous exemptions.

Fuel Duty and Alternative Fuel Vehicles

Despite speculation about fuel duty increases, the government has frozen rates for another year. However, hybrid vehicles are no longer receiving the same tax benefits as before, with many now being taxed similarly to conventional petrol and diesel cars. This change aims to push consumers toward fully electric options rather than transitional hybrid models.

Impact on Used Car Market

Depreciation of High-Emission Vehicles Accelerates

Older petrol and diesel cars, particularly those in higher tax bands (emitting over 150g/km CO₂), are seeing faster depreciation as higher VED rates and emissions charges make them more expensive to own. For example, a 2018 diesel SUV that previously cost £190/year to tax may now cost £240+, reducing its resale value. Dealers report growing reluctance among buyers to purchase these vehicles unless priced significantly lower.

Increased Demand for Low-Emission & Hybrid Used Cars

Buyers are pivoting toward used hybrids (emitting 50-100g/km) and efficient petrol models (under 120g/km) to avoid steep tax hikes. Popular models like the Toyota Prius (VED: £20/year) and Volkswagen Golf 1.5 TSI (VED: £180/year) are retaining value better than their less efficient counterparts. This shift is creating a two-tier used market, where low-emission cars command premium prices while high-emission vehicles sell at deep discounts.

ULEZ Expansion Reshapes Regional Markets

With London’s ULEZ and similar zones expanding to cities like Manchester and Bristol, non-compliant used cars (typically pre-2015 diesels and pre-2006 petrols) are becoming harder to sell in urban areas. In contrast, ULEZ-exempt used cars (Euro 6 diesels or Euro 4 petrols) are seeing price surges of 10-15% in affected regions. Rural markets now absorb more non-compliant vehicles, but even there, higher VED rates suppress demand.

Future-Proofing Your Vehicle Choice

With further Car Tax hikes expected in the coming years, drivers should consider long-term costs when purchasing a new or used car. Opting for an EV or a highly efficient hybrid could result in substantial savings, especially as infrastructure improves and charging becomes more accessible.

Read More: Student Loan Debt in the USA: What You Need to Know in 2025

Conclusion

The 2024 updates to UK car tax laws mark a significant shift in the government’s approach to vehicle taxation, with a clear focus on accelerating the transition to greener transport. From revised Vehicle Excise Duty (VED) rates to stricter emissions charges and evolving EV incentives, these changes will have far-reaching implications for drivers across the country. Whether you own a petrol, Car Tax, hybrid, or electric vehicle, staying informed about these adjustments is crucial to managing costs and making informed decisions about your next car purchase.

As the automotive landscape continues to evolve, further reforms are likely in the coming years, particularly as the 2035 ban on new petrol and diesel cars approaches. By understanding these key changes to UK car tax laws, drivers can not only avoid unexpected Car Tax but also contribute to a more sustainable future. Keeping abreast of these updates will ensure you remain compliant while potentially benefiting from the incentives designed to support cleaner, more efficient driving.

FAQs

Will my road tax increase this year?

Yes, most petrol and diesel cars will see a rise in VED rates, with high-emission vehicles facing the highest increases.

Are electric vehicles still exempt from road tax?

Yes, EVs remain exempt until 2025, but they will be subject to VED afterward.

Do hybrids still get Car Tax benefits?

Hybrid tax benefits have been reduced, and many are now taxed similarly to conventional cars.

How does the Expensive Car Supplement affect EVs?

From 2025, EVs priced over £40,000 will be subject to the £390 yearly supplement.

Are there new charges for driving in cities?

Yes, more cities are introducing clean air zones, meaning older, high-emission cars may face daily fees.