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Shocking UK Road Tax Hike: How Chancellor’s New Plan Will Cost Car Buyers Thousands

In a significant policy shift, the Chancellor has announced an upcoming increase in Vehicle Excise Duty (VED) for many new car models, set to take effect in April 2025. This decision is part of the government’s strategy to emphasize further the cost differential between fully electric vehicles and their internal combustion counterparts. The adjustment in VED will see a considerable rise in the first-year road tax for vehicles based on their carbon dioxide (CO2) emissions.

Historical trends have pushed the government to enact these changes, ensuring that environmental objectives align with economic strategies. Cars emitting more than 75 grams per kilometer of CO2 will face a steep rise in their first-year road tax. For instance, vehicles that emit above 255g/km, such as luxury high-performance models—think of a V8 petrol Range Rover—will see their tax nearly double from £2,745 to £5,490. Meanwhile, more modest vehicles like the 1.2-litre hybrid Vauxhall Corsa, emitting 102g/km, will have a new rate of approximately £400, up from £195.

Furthermore, even low-emission vehicles are not exempt from these changes. Cars with emissions between 50g/km to 75g/km will see their VED rise from minimal rates of £10 and £30 to £110 and £130, respectively. This reflects a broader, more inclusive approach towards emissions reductions across the board.

Electric vehicles, previously exempt, will no longer enjoy complete VED immunity. Starting next April, these vehicles will incur a small annual tax of £10. Despite lobbying efforts, there is no change to the VED Expensive Car Supplement for vehicles over £40,000, although the government has indicated it may adjust the zero-emission vehicle threshold at future fiscal events.

“The government recognises the disproportionate impact of the current VED Expensive Car Supplement threshold for those purchasing zero-emission cars and will consider raising the threshold for zero-emission cars only at a future fiscal event, to make it easier to buy electric cars,” states a recent government briefing document.

In terms of company vehicles, the government remains committed to supporting the uptake of electric cars through the Benefit-in-Kind system. As it stands, the BiK rates will continue to afford advantageous conditions for electric vehicles. However, from the 2028-2029 tax year, these rates for zero-emission vehicles are slated to rise by 2% annually. Hybrid vehicle BiK rates will increase to 19% by 2029 to more closely match those of internal combustion engine vehicles.

“Company Car Tax rates will continue to strongly incentivise the take-up of electric vehicles, while rates for hybrid vehicles will be increased to align more closely with rates for internal combustion engine (ICE) vehicles, to focus support on electric vehicles.”

Moreover, changes in taxation also impact luxury 4×4 pick-ups. As of next April, these vehicles will be taxed similarly to regular cars concerning capital allowances and Benefit-in-Kind purposes, closing what has been perceived as a loophole. Existing models will benefit from transitional tax arrangements that extend until 2029.

Looking ahead, these adjustments in vehicle taxation signal a strengthened commitment by the government to encourage electric vehicle adoption while disincentivizing high-emission alternatives. As these rates come into effect, they may well prompt shifts in consumer behavior towards greener options. With the significant financial implications expected, including an estimated increase in treasury funds by £400 million next year and £1.7 billion by the decade’s end, this policy will likely influence both the automotive market and environmental efforts extensively.

Alex Harrington

Alex started racing at a young age so certainly knows his way around a car and a track. He can just about put a sentence together too, which helps. He has a great interest in the latest models, but would throw all of his money at a rusty old French classic and a 300ZX. Contact: alex@grandtournation.com

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