Motorists of electric, diesel and petrol vehicles could be hit with significant changes in tax. But who will be affected and by how much?
For many years, electric vehicle drivers have enjoyed a tax-free status on their cars, but this is set to change in 2025 as several major adjustments are introduced. With the rise in electric vehicle ownership, alterations to Vehicle Excise Duty – or VED – could impact thousands of drivers when they come into effect on April 1.
Drivers of new petrol, diesel and hybrid vehicles have been warned that they are likely to face higher first-year tax rates in 2025 – with most rates doubling. For a comprehensive breakdown, read below.
Electric vehicles
Currently, electric vehicles do not attract any VED charges. Although drivers don’t have to pay anything, they still need to tax their vehicles, following the usual process as you would with a ‘standard’ car. The number of registered electric vehicles continues to grow, with the Society of Motor Manufacturers and Traders reporting a 41.6 per cent increase in the number of new EVs registered during January 2025.
Only fully electric cars are exempt from tax, although some extremely low-emission hybrids also qualify but only those manufactured between March 1, 2001 and March 31, 2017. But what’s changing in 2025?
From April 1, 2025, the landscape will shift for electric vehicle owners. For the first time, they’ll be required to pay Vehicle Excise Duty (VED), marking a significant increase in ownership costs, reports Lancs Live.
Additionally, a new Expensive Car Supplement will mean that those purchasing electric vehicles costing over £40,000 could face an annual tax bill of up to £620. For electric, zero or low emissions vehicles registered on or after April 1, 2025, drivers will have to pay the lowest first-rate of tax – £10 – but from the second tax payment onwards, this will rise to the standard rate of £195 a year.
Electric, zero or low-emission cars registered between April 1, 2017 and March 31, 2025, will now pay the standard rate of £195. Meanwhile, EVs registered between March 1, 2001 and March 31, 2017, will move to the first band that has a VED value, meaning a tax payment of £20.
Until now, electric vehicles have been exempt from the Expensive Car Supplement, but that changes from April 1 with cars registered on or after this date now liable for the additional cost. This means many owners of an EV over £40,000 will pay £620 per year in road tax.
Will electric vehicles still prove cheaper to run than petrol and diesel cars? While the recent tax changes may impact the overall affordability of running an electric vehicle, they should still prove relatively inexpensive to run in many areas. This largely depends on whether the owner can access home charging, which allows them to benefit from extremely low electricity rates offered by EV-friendly tariffs.
For an average EV, this could mean a full charge providing around 200 miles of range for as little as £5. However, the story is different if you can only use public charging, where costs are significantly higher.
Electric vehicles also require less maintenance than their petrol or diesel counterparts due to fewer moving parts. However, regular checks are still necessary to ensure key components are functioning properly and consumables such as tyres, wipers and brake pads will still need replacing.
Petrol, diesel and hybrid vehicles
Meanwhile, drivers of new petrol, diesel and hybrid vehicles have been warned to brace themselves for higher first-year tax rates in 2025 – with most rates set to double. This move by the Government aims to encourage consumers towards electric vehicles while widening the gap between ‘higher polluting’ vehicles and EVs, through an increase in the first-year Vehicle Excise Duty (VED) for many new cars.
Electric vehicles (EVs), presently exempt from Vehicle Excise Duty (VED) charges, will face a nominal £10 charge for the first year from April, a rate that has been frozen. In stark contrast, rates will significantly increase for petrol, diesel, and hybrid vehicles, with most doubling.
The Treasury explained to Car Dealer Magazine that, come next April, a new Ford Puma owner’s initial VED could leap from £220 to £440, whereas a fresh Range Rover purchase may incur first-year fees of up to £5,490, up from £2,745.
Meanwhile, the existing Expensive Car Supplement, which demands an additional £410 annually for five years on cars over £40,000, won’t be applied to electric models but the government hasn’t ruled out extending it to EVs at a later fiscal event. Chancellor Rachel Reeves underlined the government’s commitment to green transport during her Budget announcement, saying: “To help drive the transition to electric vehicles the government is strengthening incentives to purchase EVs by widening the differentials in Vehicle Excise Duty First Year Rates between EVs and hybrids or internal combustion engine cars.
“The government is also maintaining EV incentives in the Company Car Tax regime and extending 100% First Year Allowances for zero emission cars and EV charge points for a further year.” The first-year road tax VED for all new cars, as well as car tax for new cars in their second and subsequent years, are important considerations when purchasing a new vehicle. If your new car cost less than £40,000 when you first purchased it, these rates apply.
However, they will rise with inflation in April 2025. For those who purchase a new car with a list price (including options and extras) of more than £40,000, an additional fee will be required.
This figure has been frozen since its introduction, but the recent inflation jump now means a mid-spec Vauxhall Astra PHEV can count as a luxury car. From April 2025, EVs will also have to pay this supplement.
These rates apply in years two, three, four and five, resulting in an extra £410 a year. Owners of older petrol and diesel vehicles, first registered between 1984 and 2001, will also face new Vehicle Excise Duty (VED) car tax fees in the coming months.
Unlike modern vehicles which pay VED based on emissions levels, older cars pay based on engine capacity. Vehicles first registered before 1984 are completely exempt from charges due to historic vehicle tax exemption rules.
Many petrol and diesel car owners are set to feel the pinch as rates are predicted to rise across the board. According to motoring experts at Pete Barden, older cars with an engine capacity of 1549cc and below will see a £10 increase from the spring.
Annual rates for these motorists will rise from the current £210 to reach £220 per annum, from April 2025. Vehicles above 1549cc will pay £360, up from the current £345 rate paid by motorists today.
The £15 increase may seem steep but is actually less than the increase for drivers in this category 12 months ago. Last year, rates were increased by £20 with fees jumping up from the previous £325 rate charged to road users in the 2023/24 financial year.