Starting April 2025, the UK government is implementing significant changes to the Vehicle Excise Duty (VED), commonly known as car tax.
These changes impact electric, hybrid, petrol, and diesel vehicles, with the goal of making the tax system fairer and more aligned with environmental goals.
Whether you’re an existing vehicle owner or planning to purchase a new car, understanding how these updates will affect your annual car tax is crucial. This guide breaks down the new tax bands, how much you will pay, and tips to help you navigate the changes.
Key Changes to Car Tax Bands in the UK for 2025
In 2025, car owners in the UK will experience changes across different vehicle categories, including higher taxes for high-emission vehicles, new taxes for electric vehicles (EVs), and adjustments to hybrid and alternative fuel vehicle taxes. Below is a summary of these updates:
| Change | Details |
|---|---|
| VED for Electric Vehicles (EVs) | First-year rate: £10; Standard annual rate from second year: £195; Expensive car supplement: £425 for five years if list price > £40,000. |
| Increased First-Year Rates for Petrol/Diesel | First-year tax for high-emission vehicles increased to up to £5,490 from £2,745. |
| Changes for Hybrid & Alternative Fuel Vehicles | Discontinuation of the £10 discount for hybrids, bringing them in line with petrol and diesel vehicles. |
| Expensive Car Supplement | £425 annually for cars over £40,000 from second year onward. |
| Standard Annual Rates | £195 for all vehicles from the second year onward. |
These changes mark a significant shift toward ensuring that all vehicle owners contribute fairly to road maintenance, and they encourage the adoption of low-emission and electric vehicles.
Understanding Vehicle Excise Duty (VED)
VED is an annual tax that all vehicle owners in the UK must pay to legally drive on public roads. It is calculated based on factors such as vehicle type, CO₂ emissions, fuel type, and price.
Historically, electric vehicles (EVs) were exempt from VED as an incentive to promote environmentally friendly transportation. However, with more electric vehicles on the road, the government has decided to implement VED for new EVs starting in 2025.
What’s Changing in 2025?
1. Electric Vehicles (EVs) Tax Rates
Starting April 1, 2025, new electric vehicles will be subject to VED. Here’s a breakdown:
- First-Year Rate: £10
- Standard Annual Rate (from second year onward): £195
- Expensive Car Supplement: £425 annually for vehicles with a list price over £40,000 (applies for five years).
Example: If you buy a new electric vehicle priced at £45,000 in April 2025, your first-year VED will be £10. From the second year to the sixth year, the total annual VED will be £620 (£195 + £425 supplement).
2. First-Year Rates for Petrol and Diesel Vehicles
First-year VED rates for petrol and diesel vehicles emitting more than 255g/km CO₂ will see significant increases. The tax will rise from £2,745 to £5,490 for high-emission vehicles.
Example: A petrol vehicle with emissions over 255g/km will now be taxed at £5,490 for the first year—an increase of over £2,700 compared to 2024 rates.
3. Hybrid and Alternative Fuel Vehicles
Hybrids and alternative fuel vehicles previously enjoyed a £10 discount on their VED. Starting in 2025, this discount will be removed, and hybrids will be taxed at the same rate as petrol and diesel vehicles.
Example: A hybrid vehicle currently paying £180 annually (with the £10 discount) will see its VED increase to £195 starting in 2025.
4. Expensive Car Supplement
Vehicles with a list price over £40,000 will now be subject to an additional £425 supplement starting in the second year of registration. This supplement applies to all vehicles, including EVs.
Example: A hybrid SUV priced at £42,000 will pay £620 annually from the second year onward (£195 + £425 supplement).
5. Standard Annual Rates
From the second year onwards, all vehicles, regardless of fuel type, will pay a standard annual VED rate of £195.
How to Minimize Your VED Costs
To avoid unnecessary tax expenses, consider the following tips:
- Purchase EVs Before April 2025: If you’re thinking of buying an electric vehicle, consider purchasing it before April 1, 2025, to benefit from current exemptions.
- Switch to Lower-Emission Vehicles: If you own a high-emission vehicle, consider switching to a more fuel-efficient or hybrid model to save on first-year VED costs.
- Renew VED Early: For EV owners, renewing your VED before April 2025 could help you avoid the new VED charges for an additional year, saving you £195.
The 2025 changes to Vehicle Excise Duty (VED) represent a significant shift in the UK’s tax structure. While electric vehicles will now be subject to VED, these vehicles will still benefit from lower annual rates compared to traditional petrol and diesel vehicles.
Additionally, the expensive car supplement and higher first-year rates for high-emission vehicles will affect many car owners.
Understanding these changes will help you prepare for future payments and make informed decisions when purchasing a vehicle.
FAQs
How much will I pay for my electric vehicle in VED starting in 2025?
New electric vehicles will be charged £10 for the first year and £195 annually from the second year onward.
Will petrol and diesel vehicles face higher taxes in 2025?
Yes, first-year tax rates for high-emission petrol and diesel vehicles will increase significantly, with rates reaching £5,490 for some models.
How can I reduce my VED costs?
Consider buying an electric vehicle before April 2025 or switch to a lower-emission model to reduce first-year VED rates.