The End of Tax-Free Electric Vehicles

For years, electric vehicle (EV) owners in the UK have enjoyed a significant financial perk: exemption from Vehicle Excise Duty (VED), commonly known as road tax. This tax break has been part of the government's strategy to encourage the adoption of zero-emission vehicles and support environmental goals.

However, as announced by the Chancellor in the Autumn Statement 2022, this tax advantage will come to an end in April 2025. From this date, all electric vehicles will be subject to VED, bringing them in line with petrol and diesel vehicles in terms of taxation.

This article examines exactly how much more EV owners will pay from 2025, the financial impact on different types of electric vehicles, and strategies to minimize the effect on your wallet.

The Financial Impact: How Much More Will You Pay?

The amount of additional tax you'll pay from April 2025 depends on several factors, including when your EV was registered and its original list price. Let's break down the financial impact for different categories of EV owners:

For Owners of EVs Registered Between April 1, 2017 and March 31, 2025

This represents the largest group of current EV owners. If you purchased your electric vehicle between April 2017 and March 2025, you'll see your annual road tax bill increase from zero to £195 starting in April 2025.

Over a five-year period, this amounts to an additional £975 in running costs that you may not have factored into your original purchase decision.

For Owners of EVs Registered Before April 1, 2017

Early adopters of electric vehicles will face the smallest increase. If you own an EV that was registered before April 2017, you'll pay just £20 per year from April 2025. This lower rate acknowledges the pioneering role of early EV adopters and the fact that these vehicles typically have shorter ranges and older technology.

Over five years, this amounts to an additional £100 in running costs.

For Owners of Premium EVs (Original List Price Over £40,000)

Owners of premium electric vehicles will face the steepest increase. If your EV had an original list price over £40,000 and is still within the five-year period for the expensive car supplement (years 2-6 of ownership), you'll pay:

• The standard rate of £195 per year
• Plus the expensive car supplement of £425 per year
• Totaling £620 per year

Over the remaining period of the expensive car supplement, this could add up to as much as £3,100 in additional costs (if you have all five years of the supplement remaining).

For Owners of Electric Vans

Electric van owners will see their annual tax increase to £335 per year, the same rate applied to petrol and diesel vans. For businesses operating electric van fleets, this could represent a significant increase in operating costs.

For Owners of Electric Motorcycles and Tricycles

Electric motorcycle and tricycle owners will pay £25 per year from April 2025, ending their current tax-free status.

For New EV Buyers (Registered from April 1, 2025)

If you're planning to buy a new EV after April 1, 2025, you'll pay:

• A reduced first-year rate of just £10
• The standard rate of £195 from the second year onwards
• If your vehicle costs over £40,000, you'll also pay the expensive car supplement of £425 per year for five years (years 2-6)

Comparative Impact: A Five-Year Cost Analysis

To better understand the financial impact of these changes, let's look at the additional costs over a five-year period for different types of EV owners:

*Assuming all five years of the expensive car supplement remain. If fewer years remain, the additional cost will be lower.

Strategies to Minimize the Financial Impact

While the end of tax exemption for electric vehicles is unavoidable, there are several strategies that can help minimize its financial impact:

1. Time Your EV Purchase Strategically

If you're considering buying an electric vehicle, purchasing and registering it before April 2025 will give you a few months of tax-free driving before the changes take effect. While this won't avoid the tax entirely, it does provide a small window of savings.

2. Stay Under the £40,000 Threshold

When shopping for a new EV, being mindful of the £40,000 price threshold can save you a significant amount in taxes. The difference between a vehicle priced at £39,995 and one at £40,005 could be an additional £2,125 in tax over five years (£425 × 5 years).

Be careful with optional extras and upgrades that could push your vehicle's list price over this threshold. The £40,000 threshold is based on the published list price, including optional extras, delivery, and VAT, but excluding the plug-in car grant (if applicable).

3. Consider the Overall Running Costs

While the introduction of road tax will increase the cost of owning an EV, electric vehicles still offer significant savings in other areas:

• Lower fuel costs (electricity vs. petrol/diesel)
• Reduced maintenance costs (fewer moving parts, no oil changes)
• Potential savings on congestion charges and clean air zone fees
• Lower company car tax rates (Benefit-in-Kind)

When evaluating the impact of the tax changes, consider these ongoing savings as part of your overall cost calculation.

4. Take Advantage of Company Car Benefits

If you're eligible for a company car, electric vehicles will still offer significant tax advantages through the Benefit-in-Kind (BiK) scheme, even after the VED changes. BiK rates for electric vehicles remain much lower than for petrol or diesel alternatives:

• 2024-25: 2% BiK rate for EVs
• 2025-26: 3% BiK rate for EVs
• 2026-27: 4% BiK rate for EVs
• 2027-28: 5% BiK rate for EVs

These rates are significantly lower than those for petrol and diesel vehicles, which can be as high as 37% depending on CO2 emissions.

5. Consider Older EVs for Lower Tax Rates

If you're in the market for a used electric vehicle, models registered before April 2017 will be subject to a much lower tax rate of just £20 per year from April 2025. While these vehicles may have shorter ranges and older technology, the tax savings could be significant for those who primarily need a vehicle for short journeys.

Why Is This Happening? Understanding the Government's Rationale

The government has provided several reasons for ending the tax exemption for electric vehicles:

1. Revenue protection: As more drivers switch to electric vehicles, the government faces a significant reduction in road tax revenue. These changes are estimated to raise over £1.5 billion by 2027-28.
2. Fairness in road funding: The principle that all road users should contribute to the maintenance and development of the road network, regardless of the type of vehicle they drive.
3. Maturing EV market: As electric vehicles become more mainstream and affordable, the government believes that the market no longer needs the same level of tax incentives to encourage adoption.
4. Transition to a sustainable system: With the UK's plan to end the sale of new petrol and diesel cars by 2030, a new taxation system is needed that accounts for the growing proportion of electric vehicles.

The Bigger Picture: EVs Still Make Financial Sense

Despite the end of the road tax exemption, electric vehicles are likely to remain financially advantageous for many drivers when all costs are considered:

• Fuel savings: The cost of charging an EV is typically much lower than refueling a petrol or diesel vehicle, especially for those who can charge at home.
• Maintenance savings: EVs generally require less maintenance due to fewer moving parts and no need for oil changes.
• Lower first-year tax: New EVs will still benefit from a reduced first-year tax rate of just £10, compared to potentially thousands for high-emission vehicles.
• Resale value: As the UK moves toward phasing out new petrol and diesel vehicles, electric vehicles may maintain their value better in the long term.

Conclusion: Preparing for the Change

The end of tax-free electric vehicles marks a significant shift in the UK's approach to vehicle taxation. While it will increase costs for EV owners, understanding the specific impact on your situation and implementing strategies to minimize this impact can help you adapt to these changes.

For most EV owners, the additional £195 per year represents a relatively small proportion of overall vehicle running costs. For those with premium EVs, the impact is more substantial, but still needs to be considered in the context of the overall cost of ownership.

As the UK continues its transition to a greener transport system, it's likely that the tax framework will continue to evolve. Staying informed about these changes and planning accordingly will help you make the most financially sound decisions about your electric vehicle ownership.

Use our car tax calculator to estimate how much you'll pay under the new system and compare costs between different vehicle types.