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New ‘Luxury’ Car Tax on Electric Vehicles Sparks Industry Concerns
Starting today, motorists purchasing new electric family cars may face a £2,125 ‘luxury’ tax. This levy, part of significant alterations to Vehicle Excise Duty (VED), is prompting worry among industry experts who fear it could impede the adoption of EVs at a crucial juncture.
Under the revised car tax regulations, initially declared by the prior administration and now enacted, electric cars are no longer excused from VED.
Beyond the initial £10 ‘showroom tax’ upon purchase and an annual standard rate of £195, EVs priced above £40,000 will also be subject to the ‘expensive car supplement‘.
This additional tax, initially implemented in 2017, previously only applied to petrol, diesel, and hybrid vehicles exceeding the £40,000 price point.
Experts suggest that electric vehicle purchasers are considerably more likely to encounter this luxury tax, as approximately 70% of new EVs entering the market surpass the £40,000 threshold.
Auto Trader has cautioned that EV buyers are three times more prone to be affected by this supplement compared to individuals buying cars with combustion engines.
In response to the supplement, some manufacturers have recently adjusted pricing strategies, reducing the cost of certain electric models to fall just under the £40,000 limit.
Impact of the New EV Tax
Previously, electric vehicles benefited from complete exemption from all VED charges, including the expensive car supplement.
However, recently introduced rules by the Chancellor mean that individuals buying an EV with a list price exceeding £40,000 – similar to purchasers of higher-priced petrol and diesel cars – will also incur this additional ‘luxury tax‘ burden.
The supplement amounts to £425 annually, payable in addition to the standard £195 rate from the second to the sixth year following the car’s registration.
Consequently, new EV buyers from today will not experience the immediate impact of this extra tax until 2026.
However, its eventual financial effect will be substantial.
It will elevate the total yearly VED expenditure to a significant £620, accumulating to £3,100 over a five-year ownership period.
The supplement has been termed a ‘Tesla tax’ by EV owners and industry participants, given that the majority of new vehicles from the popular US manufacturer typically exceed the £40,000 price threshold.
Industry Backlash and Concerns
This policy shift has elicited widespread disapproval from the automotive sector. Industry members are questioning the rationale behind maintaining the £40,000 threshold for the supplement for EVs, considering they generally cost approximately £10,000 more than comparable petrol cars due to battery expenses.
Ginny Buckley, founder of Electrifying.com, an EV-focused website, criticized the failure to revise the ‘outdated luxury car tax threshold’ as ‘another indication of inadequate leadership in the transition to electric vehicles.’
Electric family cars like the Kia Niro EV and Volkswagen ID.7 will be impacted by the luxury tax, despite potential buyer discounts bringing the price below £40,000.
This is because VED supplement regulations are based on a car’s recommended retail price (RRP) – including optional extras – rather than the actual price paid by motorists.
Auto Trader indicates that 56 percent of electric cars up to five years old listed on their platform have a retail price exceeding £40,000.
For petrol or diesel cars within the same age bracket, the proportion is only 16 percent.
Ian Plummer, commercial director at Auto Trader, strongly criticized the measure, asserting it is ill-timed and provides consumers ‘additional disincentives to switch’ to electric motoring.
He further stated: ‘Despite the current global economic uncertainties, postponing these duty increases would be prudent to mitigate the risk of negatively impacting public perception of EVs, especially considering the marginal revenue gains for the Treasury.’
‘EVs up to five years old on our site are 3.5 times more likely to be affected by the expensive car supplement than internal combustion engine cars of similar age.’
‘Such a disparity is counterproductive to efforts aimed at encouraging drivers to transition to electric vehicles.’
Chris Rosamond, from Auto Express, reported that DVLA data reveals almost a third (31 percent) of new cars already incur the expensive car supplement. He also noted that this figure could rise to 70 percent for new EVs sold going forward.
‘Applying a tax framework designed for petrol cars eight years ago to contemporary EVs is unjust, especially considering the considerable financial implications.’
‘With private EV adoption already facing challenges and cost being a major deterrent for potential buyers, this adjustment risks slowing down progress at a critical juncture.’
‘The Government should be incentivizing drivers to adopt EVs, not penalizing them.’
Manufacturers React by Lowering EV Prices
Car manufacturers are beginning to respond to the new tax regime by adjusting their pricing.
Vauxhall is the latest brand to update its price list to guarantee all its electric car models now fall below the £40,000 threshold.
The Vauxhall Grandland Ultimate, previously priced at £40,495, has been reduced by £500 to £39,995.
Similarly, the Astra ST Ultimate estate, formerly at £40,695, has been decreased to just under £40,000.
This follows similar actions by Abarth, who also lowered EV prices to avoid the supplement.
Eurig Druce, Vauxhall’s managing director, stated: ‘The £40,000 threshold for the expensive car supplement has remained unchanged since its inception in 2017, despite significant subsequent inflation.’
‘Adjusted for inflation, this threshold would now be approximately £52,000.’
‘This new tax unjustly penalizes consumers purchasing some of the more accessible electric cars available.’