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Buying a car? If it’s new, high-spec, or pricey, you might hear about the luxury car tax. Many drivers only spot it on paperwork, and it can be a shock.
Here’s a quick guide: who pays it, how much, and what it means for new, used, and electric cars.
What is the luxury car tax?
- Not a separate tax. It’s officially the Vehicle Excise Duty (VED) expensive car supplement.
- Extra annual charge if your car had a list price exceeding £40,000 when new.
- Applies whether you buy outright, on finance, or second-hand.
When did it start?
- Introduced in April 2017.
How much is it?
- £450 per year (2024/25 rate)
- For 5 years
- Starting from the second year your car is registered
This is on top of the standard VED rate.
Tip: Check before you buy as the extra cost can add up.
Second-hand cars
- Based on original list price when new, not what you paid.
- Buy a used car under £40,000? You might still pay if it originally cost £40,000+ and is within the 5-year period.
Always check the car’s tax status before buying.
Electric vehicles (EVs)
- EVs were exempt, but from 1 April 2025, they pay VED and may face the luxury car tax.
- Cars exceeding £40,000: luxury car tax applies.
- November 2025 Budget update: EV threshold raised to £50,000 (effective April 2026).
- Retrospective relief: EVs bought between £40,001–£50,000 after April 2025 no longer pay.
- The above does not apply to hybrid and plug-in hybrid cars.
Protecting what matters on the road
Insurance is just as important as knowing tax rules, whether you’re driving a brand-new car, a second-hand vehicle, or an electric model.
Forces Mutual offers Car Insurance designed with the needs of serving, retired and veteran members of the Armed Forces, Staff and their families. To find out more and see if it’s right for you, take a look at our car insurance options today.
You can either call us on 0151 363 5290 or go online here.
Forces Mutual Car Insurance is provided by ERS.
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