Big changes to car tax are set to impact UK drivers starting in April 2025, following a recent budget announcement by Chancellor Rachel Reeves.
The new tax increases primarily affect Vehicle Excise Duty (VED), or car or road tax. It will significantly increase across various vehicle categories, including petrol, diesel, and electric vehicles (EVs).
The new regulations are expected to generate 9.4 billion euros by the 2027/28 fiscal year, up from 73 billion euros in 2022-23.
This increase reflects the government’s strategy to recover lost revenue as more drivers transition to low-emission vehicles. The changes will particularly affect vehicles registered after April 1, 2017, while older models will remain under the previous tax structure.
Key Tax Increases
Electric Vehicles: For the first time, electric vehicle owners will be required to pay VED. Starting April 1, 2025, new zero-emission cars will incur a first-year tax of 10 euros escalating to a standard rate of 165 euros from the second year onward.
This marks a significant shift, as EVs have previously been exempt from road tax.
Hybrid Vehicles: Hybrids registered after April 1, 2017, will lose their 10-euro annual discount and will instead be taxed at a flat rate of 195 euros from the second year onwards.
Those registered before this date will continue to pay based on CO2 emissions.
Petrol and Diesel Cars: The first year VED for petrol and diesel vehicles is set to double for those emitting over 76 g/km of CO2. For example, a new Ford Puma’s first-year tax rises to 130 euros.
Additional Impacts
The budget also includes changes to benefits in kind (Bik) rates for company cars, with most vehicles facing a one per cent increase starting in April 2015.
This change is expected to affect fleet operations significantly, as double can picks will now be categorized as cars for tax purposes.
As UK households brace for these tax hikes, motorists must understand how these changes will affect their finances.
The government’s approach aims not only to address revenue shortfalls but also to encourage a transition towards more environmentally friendly vehicles. With the implementation date approaching, divers should prepare for the financial implications of these new regulations.