Electric household vehicles to be hit with £2,125 ‘luxurious’ tax beneath new VED guidelines from in the present day

Motorists buying new electric family cars from today are likely to be stung by a £2,125 ‘luxury’ tax as part of wholesale changes to Vehicle Excise Duty (VED) that industry insiders say threatens to slow the transition to EVs at a ‘critical time’.

Under new car tax rules announced by the previous Tory Government and ushered in by Labour, electric cars are no longer exempt from VED.

But as well as having to pay a £10 ‘showroom tax’ when new and a £195 standard rate every year thereafter, EVs priced over £40,000 will also be levied with the ‘expensive car supplement’.

The supplement, a premium tax first introduced in 2017, has until now only applied to petrol, diesel and hybrid cars priced over £40,000.

Experts say the likelihood of EV buyers paying this luxury tax is far greater, with the price of seven in ten new EVs entering the road exceeding the £40k threshold.

In fact, Auto Trader has warned that EV buyers are three times as likely to be hit with the supplement than those purchasing cars with combustion engines.

Some manufacturers have responded to the supplement in recent days by slashing prices so their electric models fall just below the £40,000 threshold.

Until now, EVs have been exempt from all VED charges, including the expensive car supplement.

However, new rules introduced by Chancellor Rachel Reeves mean drivers purchasing an EV with a list price of more than £40,000 will – like buyers of pricier petrol and diesel cars – also incur the financial wrath of a luxury tax.

The supplement is £425 paid annually on top of the standard rate of £195 from years two to six after a car is registered.

This means new EV buyers from today will not feel the impact of this additional tax until 2026. 

But it will be sizable when it eventually kicks in. 

It will take the total annual VED outlay to an eye-watering £620 – or £3,100 in total over a five-year period of ownership.

The supplement has been dubbed a ‘Tesla tax’ by EV owners and industry insiders, given that new cars sold by the popular US maker typically exceed the £40k threshold.

The move has received an industry-wide backlash, with members of the automotive sector questioning why the £40,000 barrier for the supplement hasn’t been increased for EVs, given they are typically around £10,000 more expensive than an equivalent petrol due to the cost of batteries that power them. 

Ginny Buckley, founder of EV-dedicated website Electrifying.com, said the failure to update the ‘outdated luxury car tax threshold’ is ‘yet another sign of poor leadership in the transition to electric vehicles’.

It will see electric family cars like Kia’s Niro EV and Volkswagen’s ID.7 fall foul of the luxury tax – even when buyers negotiate discounts to bring the price below £40,000.

This is because the VED rules for the supplement are based on a car’s recommended retail price (RRP) – inclusive of optional extras – rather than the amount motorists really pay.

Auto Trader says 56 per cent of the electric cars up to five years old on its site have a list price in excess of £40,000.

For those in the same age range with a petrol or diesel engine, the percentage is just 16 per cent.

Ian Plummer, commercial director of Auto Trader, blasted the move, describing it as the wrong time to give consumers ‘additional reasons not to make the switch’ to electric motoring.

He added: ‘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.

‘EVs up to five years old on our site are three-and-a-half times more likely to be hit by the expensive car supplement than internal combustion engine cars in the same age range.

‘That kind of difference is unhelpful for efforts to persuade drivers to switch.’

Chris Rosamond, current affairs and features editor at Auto Express, said DVLA records show that almost a third (31 per cent) of new cars are already subject to the expensive car supplement – and that going forward, it will hit up to 70 per cent of new EVs sold.

‘Levying what is basically a tax set on petrol cars eight years ago onto EVs today is unfair, especially when you consider the large sums involved.

‘With private EV uptake already struggling and cost being one of the main deterrents for potential buyers, this change risks slowing adoption at a critical time. 

‘The Government should be supporting drivers in making the switch to EVs, not penalising them.’

Manufacturers slash EV prices to dodge expensive car supplement

Vauxhall has become the latest car brand to react to the luxury tax by updating its price lists to ensure every one of its electric cars now sit below he £40,000 threshold. 

The Vauxhall Grandland Ultimate, previously listed at £40,495, has been reduced by £500 to £39,995. 

The Astra ST Ultimate estate was £40,695 but has now been trimmed just below £40,000.

This comes after Abarth took similar measures by slashing its EV prices to ensure they sat below the supplement barrier. 

Eurig Druce, Vauxhall’s managing director said: ‘The threshold for the expensive car supplement has remained at £40,000 since inception in 2017, despite subsequent high levels of inflation.

‘If it were to have risen with inflation it would now be around £52,000. 

This new tax means that customers buying some of the more attainable electric cars on the market are now being penalised.’