The UK Government Considers Raising Luxury Car Tax Threshold for Electric Cars
The UK government is currently exploring the idea of increasing the threshold for the luxury car tax on electric vehicles in order to encourage more people to switch to EVs. The current Expensive Car Supplement (ECS) applies to all cars priced above £40,000, including electric vehicles starting from April 2025. This results in an additional £425 in vehicle excise duty (VED) annually for years two to six after purchase.
When combined with the standard annual VED rate of £195 for EVs from year two onwards, vehicles priced at £40,000 or more are subject to a total tax bill of £3100 within the first six years of ownership.
Despite the average cost of an EV being well above £40,000, there has been criticism that this tax scheme contradicts the government’s zero-emission vehicle mandate. This mandate requires manufacturers to achieve a 28% EV sales mix this year, increasing to 80% by 2030. However, as of April, EVs only accounted for 20.4% of new car registrations, falling short of the previous year’s target of 22%. Additionally, EVs currently make up just 10.7% of private car sales, prompting calls for the government to incentivize consumers to make the switch to electric vehicles.
Stellantis UK boss, Eurig Druce, has voiced support for a review of the taxation system, advocating for a higher threshold to facilitate a smoother transition to electric cars. Ford has also criticized the government for introducing VED on EVs while simultaneously penalizing manufacturers for not meeting sales targets, stating that this move could hinder EV adoption at a critical juncture for the industry.
However, there is hope on the horizon as the government has hinted at potential adjustments to the ECS scheme. This could lead to significantly reduced VED costs for many of the EVs currently available in the UK market.
Lilian Greenwood, the Minister for the future of roads, acknowledged the disproportionate impact of the current VED threshold on zero-emission vehicles and expressed a commitment to exploring the possibility of raising the threshold for EVs in the future. This move aims to make it easier for consumers to purchase electric cars and help achieve the mandated sales targets in the years ahead.
