Motorists have been urged to brace for a rise in road tax when buying a new car as the Government adds incentives for electric vehicle owners.
Whilst the Labour Government’s first budget was noted for a number of sharp tax rises, there were a number of positives for motorists, including a freeze on fuel duty and increased spending on road repairs to cut the number of potholes on the roads.
However, with electric vehicle owners set to pay road tax for the first time in April 2025, the Government has increased the amount that petrol and diesel car owners will pay during the first year in which their vehicle is registered.
Currently, during the first year it is registered, vehicles are classified into tax bands based on the amount of carbon dioxide they produce.
In many cases, the amount of tax new car buyers will pay will double, with many popular petrol and diesel models subject to hundreds in tax during its first year on the road.
In particular, luxury models with large engines are the worst affected by the tax increase, with the cost of taxing a car that makes more than 255g/km of carbon dioxide rising from £2,745 to a staggering £5,490 in its first year.
However, even the smallest petrol-powered city cars will also be subject to a hefty rise in road tax, as the 111 to 130g/km class required to pay £440 for tax – an increase of £220.
The flat rate of tax that drivers need to pay in following years will also likely rise in April 2025, likely reflecting the overall inflation rate.
In addition to sharp rises for petrol and diesel models, a large number of electric vehicle owners will be forced to pay for luxury vehicle tax, an additional fee of £410 on all models with a retail price of more than £40,000.
Whilst Chancellor Rachel Reeves has yet to address requests to drop the rate on electric models, the budget briefing document highlights that the Government may increase the threshold.
It explained: “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.”
Iain Reid, Head of Editorial for the used vehicle retail platform Carwow, stated that the tax changes have helped to decentivise petrol and diesel car ownership over electric alternatives.
He added: “While they’re no longer exempt from vehicle excise duty from April 2025, electric cars will be subject to more favourable first-year tax rates than petrol and diesel-powered cars.
“However rather than incentivising electric car ownership, it looks like she is disincentivising ownership of other types with big increases in VED rates and a big increase in Benefit in Kind for hybrid cars coming in 2028.”
