Next year is set to become more expensive for motorists – including those who have opted for an electric car – after changes to road tax announced in the budget come into effect.
Rachel Reeves’s first budget as chancellor saw her introduce numerous tax hikes, with motorists not being spared a financial hit.
Most of the changes are centred around VED (also known as car tax or road tax), which will see most motorists end up paying more.
The Office for Budget Responsibility estimates that £9.4billion will be raised by Vehicle Excise Duty (VED) by 2027/28 – up from the £7.3 billion collected for the 2022-23 tax year.
A key element to understanding these changes is how VED works in terms of when a car is registered.
Different rules apply depending on whether the vehicle was registered after 1 April, 2017. There are similar cuts off for 2001 and 1984.
A new system was introduced in April 2017 and the recent changes only apply to cars registered after that date.
Cars registered before then will stay pay rates under the old system.
Petrol and diesel car tax changes
The biggest changes to VED come in the tax paid on brand new vehicles in their first year, also known as the ‘showroom tax’.
All cars in the UK are subject to two different rates of VED – for the first year after purchase, and then every year after that at the standard rate.
A car’s first-year tax is calculated by taking into account how much CO2 it produces, with costs dramatically increasing the more emissions it releases.
What are the new first-year VED rates?
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Zero emission cars will pay the lowest rate at £10 until 2029-30
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Rates for cars emitting 1-50 g/km of CO2, including hybrid vehicles, will increase from £10 to £110 for 2025-2026
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Cars emitting 51-75 g/km of CO2, including hybrids, will increase to £130
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All other rates for cars emitting 76 g/km of CO2 and above will double from their current level
For example, from April next year a new Ford Puma driver can expect a first-year VED rate rise from £220 to £440, while a buyer of a Range Rover could pay as much as £5,490 – up from £2,745 – in that first year of ownership.
Broadly speaking, first-year VED charges are included in the monthly payment plan for car finance and leasing deals, which will soften the impact for some new car buyers.
The second-year rate will remain the same for all petrol and diesel cars at £190.
Electric vehicle tax changes
EV owners are also losing some exemptions in 2025 as the government tries to recoup losses made from the switch away from combustion engines.
From 1 April 2025, electric vehicle owners will need to pay vehicle tax in the same way as other car owners for the first time. This change will apply to both new and existing vehicles.
For the first year tax, EV drivers will only need to pay £10.
All electric cars purchased between 1 April 2017 and 1 April 2025 will need to pay the standard £195 vehicle tax from the second tax payment onwards.
An electric car bought before 1 April 2017 will pay under the old system which is £20 a year.
Hybrids registered on or after 1 April 2017 will also lose their £10 VED discount from 1 April 2025. Instead, they will they will pay the same £195 flat annual rate from years two through to six as every other car.
Hybrids registered before 1 April 2017 will pay a rate dependent on the vehicle’s CO2 emissions.
Additionally, new EVs will also be liable for the luxury vehicle tax, known as the expensive car supplement, if priced above £40,000.
The surcharge, which costs £425 a year, is payable annually between the second and sixth years of a car’s lifespan, even if the vehicle’s ownership changes hands.
Older cars
Models registered between 1984 and 2001 are also affected by the changes with slight increases compared to previous rates.
These older vehicles are priced under a slightly different tax system with varying rates for cars with engine sizes above or below 1549cc.
This means owners pay a slight £10 increase with rates up from the current £210 per year charge for cars with smaller engines.
Meanwhile, those with slightly more power above the 1549cc threshold will pay £15 more from April at £360.
Are any cars exempt from VED?
Classic cars that are over 40 years old are exempt from road tax, along with vehicles used by disabled people, cars used to transport disabled passengers and agricultural vehicles such as tractors.
What about vans?
VED rates for commercial vehicles (vans and pick-up trucks) are much simpler, because there is just a flat rate.
For the 2024/2025 tax year the cost is £335 for 12 months. From 1 April 2025 this will increase in line with the Retail Price Index (RPI) to £345.
Although not currently liable, electric van owners will also be required to pay the flat rate VED on their vehicles from 2025 onwards.
Have VED rates gone up for motorcycles?
Vehicle Excise Duty applies to motorbikes as well as cars. Motorcycle tax is a bit simpler and only depends on the size of a bike’s engine (CCs). So, the larger the engine, the more you pay. The rates range from £25 to £117 per annum.
At the moment, electric motorcycles and tricycles don’t have to pay road tax.
From 1 April 2025, electric motorcycles riders will also have to pay tax in the same way that drivers of petrol and diesel vehicles do.
Electric motorcycles and tricycles will move to the annual rate for the smallest engine size, which is currently £25 a year.
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