Luxury Car Tax Exemption: What You Need to Know

Discover how you can navigate the upcoming changes in luxury car tax and still enjoy a premium ride without breaking the bank.

Understanding the Upcoming Changes in Luxury Car Tax

As of April 2025, the luxury car tax is undergoing significant changes. For new cars valued over £40,000, owners will face an additional cost of £425 each year from the second to the sixth year the car is on the road. This is a substantial increase that will impact many luxury car owners.

It’s crucial to understand the new regulations to avoid unexpected expenses. The extended tax applies to both internal combustion engine vehicles and, for the first time, electric cars. This means that even eco-friendly options will not be exempt from this additional cost.

How the New Tax Affects Electric Cars

Electric, zero or low emission cars registered on or after 1 April 2025

You will need to pay the lowest first year rate of vehicle tax set at £10 from 1 April 2025. From the second tax payment onwards, you will pay the standard rate. This will be £195.

Electric, zero or low emission cars registered between 1 April 2017 and 31 March 2025

You will pay the standard rate. This will be £195.

Electric, zero or low emission cars registered between 1 March 2001 and 31 March 2017

These vehicles will move to the first band that has a VED value. This will be £20.

Hybrid and alternatively fuelled vehicles (AFVs)

The £10 annual discount for hybrid and AFVs will be removed, and the rate you will pay will depend on when the vehicle was first registered. If the vehicle was:

• registered before 1 April 2017 – this rate will depend on the vehicle’s CO2 emissions (check the current rates for these vehicles)
• registered on or after 1 April 2017 – you will pay the standard rate (this will be £195)

Electric vans

Most electric vans will move to the standard annual rate for light goods vehicles. Check the current rates for these vehicles.

Strategies to Avoid Extra Costs While Owning a Premium Car

To avoid the additional luxury car tax, consider purchasing a used premium car that is more than six years old. Vehicles older than six years are exempt from this tax, allowing you to enjoy luxury without the extra financial burden. This means you can still experience the high-end features, superior craftsmanship, and advanced technology that come with luxury vehicles, all while sidestepping the hefty annual tax.

By opting for a car that has already depreciated in value, you not only save on the initial purchase price but also benefit from lower insurance premiums and maintenance costs. This strategic choice enables you to indulge in the prestige and comfort of a luxury car without the stress of added financial obligations, making it a savvy decision for those who wish to balance luxury with fiscal responsibility.

Another strategy is to opt for an electric car registered before April 2025. These vehicles will not be subject to the new tax regulations, providing a cost-effective way to own a premium electric vehicle. Careful planning and timing your purchase can save you a significant amount of money.

List of Premium Cars Exempt from Luxury Car Tax

Why Buying Used Might Be Your Best Option

Buying a used luxury car can be a smart financial decision in light of the upcoming tax changes. Used cars that are more than six years old are exempt from the luxury car tax, allowing you to avoid the additional annual £425 cost.

Additionally, purchasing an electric car that was first registered before April 2025 can provide further savings. By opting for a used vehicle, you not only save on the purchase price but also on the ongoing tax expenses, making it a more economical choice in the long run.

If you’re looking to purchase a used luxury car, please get in touch with our team to discuss your finance options. Our experienced advisers are ready to guide you through the entire process, ensuring you find a financing plan that suits your budget and lifestyle.