New tax change to have 'serious impact' on more new car buyers

Drivers have been advised that a change to the way vehicles are taxed could see more new car buyers face significant charges, particularly if they buy a certain type of car.

From April 2025, all electric car owners will need to pay road for the first time, with many of the most popular models also subject to luxury car tax.

Erin Baker, Editorial Director at the new and used vehicle marketplace Auto Trader, highlighted that the change could make many Brits think twice about buying an electric car.

She explained: "While it is unlikely that the additional luxury car tax has had much of an impact on people's car purchase decisions since 2017, this may be about to change.

"With two thirds of all electric vehicles having a price point of over £40,000, this will make switching to a zero-emissions vehicle less appealing knowing that road taxes are higher, on top of the initial investment."

Previously exempt to encourage more motorists to make the switch from a petrol or diesel model, electric car owners will need to pay Vehicle Excise Duty (VED), better known as road tax, from April 2025.

However, the large number of high-end battery packs means that many models are priced at over £40,000, meaning they qualify for luxury car tax.

As a result, owners will need to pay £410 in addition to the standard VED rate for the first five years in which the vehicle is registered in the UK, with some predicting that drivers could be taxed up to £600 per year in total.

To help steer clear of the additional costs, Erin suggested that motorists consider leasing an electric car, which will spread the cost of the luxury car tax.

She advised: "For drivers that are looking at making the switch to an electric vehicle over the next few years and are more concerned about not only the upfront cost as well as the newly implemented vehicle tax costs, car leasing is a good option to consider.

"Electric vehicles also offer attractive total cost ownership benefits, so they might actually be more economical than a petrol car."

According to Auto Trader, drivers who lease a vehicle using a Personal Contract Hire (PCH) or Business Contract Hire (BCH) will still need to pay for luxury car tax.

However, since the cost of the tax will be incorporated into the monthly payments for the vehicle, motorists can avoid having to make a hefty one-off payment.

The company also highlighted that car companies will also promote a monthly figure that includes the tax, eliminating the risk of hidden fees.