Motorists in the UK will face significant car tax and Vehicle Excise Duty (VED) changes from April 1, 2025, with tax increases affecting electric, petrol, diesel, and hybrid vehicles.
According to GloucestershireLive, the updates mark a shift in the government’s approach to vehicle taxation, particularly for electric vehicles (EVs), which will no longer be exempt.
Electric Vehicles : End of Tax Exemptions
For years, electric vehicles have been free from VED charges, but from April 2025, this will change. Drivers of fully electric cars will need to pay a first-year tax rate of £10, followed by an annual standard rate of £195 from the second year onwards.
Additionally, the Expensive Car Supplement, which applies to vehicles costing more than £40,000, will now include EVs. This means that owners of such vehicles will pay an extra £410 per year for five years, bringing the total annual tax to £620 for some electric models.
While EVs remain cheaper to maintain due to fewer moving parts, the introduction of car tax payments raises questions about whether they will still be more cost-effective than petrol and diesel cars, especially for those who rely on public charging stations.
First-Year Tax Rates Doubling
The first-year VED for new petrol, diesel, and hybrid cars will see significant increases, with most rates doubling. The government aims to further incentivise the switch to electric vehicles while penalising higher-emission models.
Currently, petrol and diesel vehicles emitting between 111g and 150g of CO2 per km pay £220 in first-year tax. Under the new system, this rate will rise to £440.
Meanwhile, cars emitting over 255g/km—such as high-performance models from Audi, BMW, Ferrari, and Porsche—will see their first-year VED jump to £5,490, an increase of £2,745.
For drivers of older vehicles registered between 1984 and 2001, VED will also increase, albeit at a slower rate. Cars with engines under 1549cc will pay an extra £10 per year, bringing the annual total to £220, while those with larger engines will pay £360, up from £345.
Second-Year Tax and Ongoing Costs
From the second year onwards, car tax (VED) for petrol and diesel cars will rise to £190 annually, while alternative fuel vehicles (such as hybrids) will pay £180. Vehicles exceeding £40,000 in value will continue to be subject to the £410 annual Expensive Car Supplement for five years.
For electric vehicles, the second-year tax will rise from £10 to £195, aligning them with petrol and diesel cars.
Chancellor Rachel Reeves emphasised that the government is committed to encouraging EV adoption by increasing the tax gap between electric and internal combustion engine vehicles. However, concerns remain over whether rising ownership costs will deter new buyers from switching to EVs.
The financial impact of these changes is expected to be substantial, with HM Revenue & Customs predicting an additional £415 million in revenue for 2025/26 due to the VED increases. However, as more motorists transition to EVs, tax revenue is projected to decline from 2027 onwards.
