Could we see the end of the 拢40k luxury car tax?
May 22, 2025 by Siobhan Doyle
Car changing is a big deal
Electric cars over 拢40,000 are still hit with the controversial luxury car tax. But is all that about to change?
The UK government is weighing up plans to raise the 拢40,000 threshold for the 鈥luxury car tax鈥 鈥 but only for zero-emission vehicles. The potential move, to be considered at a future fiscal event, is aimed at making electric cars more affordable, according to a letter, seen by , from Labour鈥檚 Minister for the Future of Roads, Lilian Greenwood, to a local MP.
Greenwood was responding to concerns raised by Ben Maguire, MP for the ancient market town of Launceston in Cornwall, on behalf of a local dealership manager who warned that the Zero Emissions Vehicle (ZEV) mandate is harming sales.
In her response, Greenwood defended the government鈥檚 position, saying the outcome of the recent ZEV mandate consultation h ad 鈥減rovided stability and certainty to British vehicle manufacturers鈥 by reaffirming the 2030 ban on new petrol and diesel car sales.
She also pointed to potential changes to the Vehicle Excise Duty (VED) surcharge on electric cars over 拢40,000 鈥 a charge introduced in April and widely criticised as a 鈥渓uxury car tax鈥 that deters EV adoption.
Currently, the Expensive Car Supplement (ECS) hits all vehicles 鈥 including electric ones from April 2025 鈥 that cost over 拢40,000, adding an extra 拢425 annually in VED from the second to the sixth year of ownership. From year two, EV owners will pay the standard annual VED rate of 拢195 annually on top of this. Together, this adds up to 拢3,100 in tax over years two to six.
With the average electric car now priced well above 拢40,000 鈥 around 拢10,000 more, according to estimates 鈥 critics argue that the luxury car tax undermines the government鈥檚 own ZEV mandate. This mandate oversees how manufacturers must meet sales targets for EVs in the run-up to 2030. Under the policy, 28% of new car sales must be electric this year, rising to 80% by 2030.
Yet in April, EVs made up just 20.4% of new registrations, below even last year鈥檚 22% target, and only 10.7% of private car sales. This has fuelled calls for stronger incentives to get more drivers behind the wheel of an electric car.
The government recently tweaked the ZEV mandate, in consultation with manufacturers, to make the goals more achievable. It also confirmed that hybrid cars can remain on sale post-2030 鈥 but the ECS threshold wasn鈥檛 among the changes.
Greenwood鈥檚 hint at a potential VED tax break for electric cars could unintentionally stall the EV market, as buyers wait to see if the so-called luxury car tax will be tweaked or scrapped.
Labour鈥檚 next fiscal event is the Autumn Budget, which is still months away. This is creating a window of uncertainty that could put off potential EV buyers. But now that the possible tax change is public, pressure is mounting on the government to act sooner and give buyers more clarity and confidence in buying an EV.
The industry has its say
Iain Reid, Head of Editorial at 莲花直播, has welcomed the news: 鈥淚t鈥檚 very encouraging to see murmurs of the government reconsidering the VED surcharge for zero-emission vehicles priced over 拢40,000. Raising or removing this 鈥榣uxury car tax鈥 threshold would provide vital support to manufacturers working to meet the government鈥檚 ZEV mandate, which requires 28% of new car sales to be zero-emission this year.
鈥淕iven the higher production costs of EVs, many models start above 拢40,000 new 鈥 making the current tax policy increasingly misaligned with the realities of the market. With 鈥榣uxury car鈥 VED charges meaning paying 拢3,100 extra over six years, drivers are being unfairly penalised for choosing cleaner vehicles. This surcharge is also applied when the vehicle is resold, as it is based on its original list price, which means it can hit used EV buyers too.
鈥淐larity on this issue is urgently needed. Drivers and manufacturers alike need certainty to make long-term decisions 鈥 not to be left waiting on the next 鈥渇iscal event鈥. The government has a real opportunity to remove barriers, boost demand, and back a fair and practical transition to zero-emission transport.鈥
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