UK Car Tax Changes: Key Vehicle Excise Duty Updates for Vehicle Owners

In 2025, the UK’s Vehicle Excise Duty (VED), commonly known as car tax or road tax, will be heavily reformed. All motorists will be affected by this change, including electric vehicle drivers. The move follows the budget statement made by the Chancellor, raising revenue and implementing a more equitable system of vehicle tax to support the environmental policies of the government. We go deeper into the main changes, their effects on various vehicle types, and the implications of the new car tax policy on new and old car owners.

Key Changes to Vehicle Excise Duty (VED) from 2025

New Car Tax Rates for Petrol and Diesel Cars

Motorists using diesel and petrol cars will pay more for a year’s car tax, that ‘showroom tax’. The amount you pay in the first year depends on your vehicle’s CO2 emissions. The higher the emissions, the more you will pay. Starting in April 2025, the following changes will apply:

• Zero-Emission Vehicles: For fully electric cars, the first-year Vehicle Excise Duty will remain the same at £10 until 2029-30.
• Low Emission Vehicles: Cars emitting between 1–50g/km of CO2, including hybrids, will see their first-year car tax rise from £10 to £110.
• Moderate Emissions: Vehicles emitting 51–75g/km of CO2 will incur a first-year VED of £130.
• Higher Emissions: Cars that emit over 76g/km of CO2 will have to double the car tax for the first year. As an example, a Ford Puma could go from the current first-year VED of £220 to £440, while a Range Rover could reach a staggering level of £5,490 in the first year, an increase of £2,745.

All the petrol and diesel vehicles will remain consistent at £190 in their second year, which ensures predictability for motorists after the first year.

Changes to Electric Vehicle (EV) Taxation

There would also be a change in 2025 for owners of electric vehicles who have previously gained some car tax relief. All of them will start paying Vehicle Excise Duty as of April 1, 2025. At present, such vehicles registered after 2017 are exempted. And the changes would be like so:

• First-Year VED: Electric vehicle owners will pay a reduced £10 in the first year, just like their petrol and diesel counterparts.

• Ongoing VED: From the second year onwards, electric cars purchased between 1 April 2017 and 1 April 2025 will pay a standard rate of £195 per year. This is the same rate as that applied to conventional petrol and diesel cars.

• Luxury Vehicle Tax: A new EV costs more than £40,000 in road tax will attract the premium car supplement which is £425 for the years between two and six years old. The levy is irrespective of the change in ownership of the vehicle.

Hybrid cars acquired on or after 1 April 2017 will no longer receive the exemption of first car tax so they pay the annual £195 from their second car tax year.

Impact on Older Vehicles

The new measures extend to older cars, those from 1984 to 2001. Owners will face a small rise in the Vehicle Excise Duty rates as:

• Vehicles under 1,549cc: The owners will incur a slight £10 hike. The car tax rate will now rise to £220 a year.
• Vehicles above 1,549cc: For those with large engines, the VED will go up by £15. The new rate will be £360 a year.

These increases, although not significant, will affect millions of older vehicles in circulation throughout the UK.

Commercial Vehicles and Vans

The car tax will be flat for the owners of commercial vehicles, such as van and pick-up truck operators. In the tax year 2024/2025, the VED for commercial vehicles is £335 a year. This will rise to £345 from 1 April 2025 in line with the RPI.

Electric vehicles, which still remain exempt from Vehicle Excise Duty, will also pay this fixed rate in 2025. This would be quite a blow to businesses that have invested in electric vans with the aim of reducing their carbon footprint.

Motorcycle Tax Changes

Owners of motorcycles will also be affected by changes in Vehicle Excise Duty. The current system, which charges tax according to engine size in CCs, will remain, but at a rate of between £25 and £117 per year. Electric motorcycles and tricycles, however, will pay VED from 1 April 2025, when the exemption comes to an end. These will be charged at the same annual rate as the smallest petrol-powered engines, now £25 per year.

Exemptions from VED

Even with all the sweeping changes, some vehicles are still exempt from paying Vehicle Excise Duty. These include:

• Classic Cars: Those older than 40 years are exempted from VED.
• Vehicles for Disabled People: Cars used by or for the benefit of a disabled person are also exempt from car tax.
• Agricultural Vehicles: Tractors and other farming or agricultural use vehicles are also exempt.

While these exemptions are retained, the general direction of policy in Vehicle Excise Duty is that more vehicles need to pay into the car tax system, certainly at a time when the government is looking for mechanisms for lower fuel duty income as electric vehicles become increasingly common.

Conclusion

The new Vehicle Excise Duty changes will impact motorists from the UK, including those who are driving new petrol and diesel cars and those behind the wheels of electric vehicles. Introducing car tax on electric vehicles, as is planned, is in part a step away from incentives offered at present to low-emission cars, but it’s part of the overall efforts to make vehicle taxation fair in the UK. From 2025 onwards, car buyers, particularly those purchasing new vehicles, will need to carefully consider the first-year VED charges as part of the total cost of ownership.

The government’s decision to raise taxes on higher-emission vehicles also reflects its commitment to reducing carbon emissions and encouraging the adoption of cleaner, more sustainable transportation options. For those with fleets of vans or commercial vehicles, Vehicle Excise Duty 2025 may involve a review of financial plans and appropriation.

As these changes take effect, it will be important for vehicle owners to be up to date about how their particular category of vehicle will be affected and to prepare for the impending rises in road tax.