In a significant policy update poised to affect both consumers and the automotive industry, the UK Government is set to increase the Expensive Car Supplement threshold specifically for electric vehicles (EVs) from £40,000 to a higher yet-undisclosed level. This comes as part of a broader strategy to stimulate uptake of zero-emission vehicles while addressing outdated tax structures that penalise mid-range electric cars.
The move, widely anticipated ahead of the 2026 fiscal year, aims to reflect the rapidly changing price landscape of EVs and align taxation more fairly with their environmental benefits.
Understanding the Current EV Taxation System
Currently, all vehicles priced over £40,000—regardless of their fuel type—are subject to an annual Vehicle Excise Duty (VED) surcharge of £425 for five years after registration commencing in the second year. Introduced in 2017, this surcharge, known as the Expensive Car Supplement, was originally designed to target high-end luxury vehicles. However, as EV technology has matured and prices have stabilised, many mainstream electric cars, such as the Tesla Model Y and Ford Mustang Mach-E, now exceed this threshold.
Table: Current VED Structure for Electric Vehicles
Why the £40,000 Threshold No Longer Works
The average retail price of a new electric car in the UK has risen to approximately £50,000, due in part to component costs and limited supply chains. The £40,000 cap—unchanged since its inception—has therefore become increasingly out of step with market conditions. Penalising buyers of mid-market EVs runs counter to the government’s net-zero goals, inadvertently discouraging the switch from internal combustion engine (ICE) vehicles.
Minister for the future of roads Lilian Greenwood wrote in a letter sent to a local MP, seen by Autocar, that measures were being considered to make it easier for the mandated sales mixes to be achieved in the coming years.
“As announced at Autumn Budget 2024, the Government recognises the disproportionate impact of the current VED Expensive Car Supplement threshold for those purchasing zero emission cars from 1 April 2025,” she wrote.
“We will consider raising the threshold for zero-emission cars only at a future fiscal event to make it easier to buy electric cars.”
Proposed Threshold Adjustment: What We Know So Far
Although no exact figure has been confirmed, industry insiders suggest the revised Expensive Car Supplement threshold may rise to between £50,000 and £60,000. This change is expected to be announced during the Autumn Statement 2025, with implementation likely in April 2026.
Key Implications
- Improved Affordability: Vehicles such as the Hyundai IONIQ 5, Polestar 2, and Kia EV6 may no longer be penalised.
- Fleet Optimisation: Business fleets will see enhanced ROI on EV leasing models, especially those operating within benefit-in-kind schemes.
- OEM Strategy Shift: Car manufacturers may reprice or repackage models to fall within the new limit, enhancing their appeal to UK buyers.
Industry Reaction: Strong Support from Stakeholders
Leading automotive bodies, including the Society of Motor Manufacturers and Traders (SMMT) and Transport & Environment UK, have welcomed the anticipated update. These organisations argue that the reform reflects both market evolution and a commitment to greener motoring.
Dealerships and leasing firms have also expressed support, citing the current surcharge as a key barrier to wider EV adoption among private and corporate customers alike.
“We welcome any fiscal policy that corrects outdated disincentives and ensures electric vehicles remain the most attractive option for motorists.” – SMMT Statement, May 2025
Consumer Impact: Who Benefits Most?
First-Time EV Buyers
Families and private individuals looking to switch from ICE vehicles to EVs will benefit directly, particularly those targeting cars like the Skoda Enyaq or the Volkswagen ID.7.
Company Car Drivers
With EVs continuing to attract low Benefit-in-Kind rates, avoiding the £425 surcharge adds further incentive for salary sacrifice schemes and business leases.
Used EV Market
As more vehicles are registered free from the surcharge, residual values will stabilise, strengthening the second-hand electric vehicle market.
Strategic Roadmap: EV Policy and the 2035 Ban
This tax review is one in a series of policy steps needed to facilitate the UK’s goal of ending sales of new petrol and diesel cars by 2035. The current charging infrastructure, consumer confidence, and upfront cost barriers still require coordinated action—but fiscal reform is a necessary foundation.
What Comes Next: Key Dates and Expectations
- Autumn Statement 2025: Formal announcement of the new VED threshold
- Finance Bill 2026: Legal enactment of the revised surcharge rules
- April 2026: Start date for updated tax banding to apply on new vehicle registrations
Matthew Walters, Head of Consultancy Services and Customer Value at Ayvens, commented: “We’re pleased to hear that the Minister for the Future of Roads is still committed to adjusting the ‘luxury car tax’ threshold for electric vehicles – but fleets need clear guidance as soon as possible, and this is already overdue.
“From 1 April 2025, newly registered electric cars priced at £40,000 or more will attract the £425 Expensive Car Supplement, levied on top of their first five annual VED (‘road tax’) renewals. That’s an additional £1,300 over a typical four-year lease, and a significant cost while fleet budgets are tight, and businesses are being encouraged to make the switch to more sustainable mobility strategies.
“The £40,000 threshold was introduced by the Coalition government in 2015, when it was expected to apply to just 5% of new cars. Today, around 64% of EVs fall above that limit, meaning the supplement now disproportionately affects those choosing cleaner vehicles – as highlighted during last year’s Autumn Budget announcement.
“Any changes would need to come into effect before April 2026, when the first affected EVs will be re-taxed, but adjustments are already overdue. Fleet operators will have factored those costs into total cost of operation (TCO) modelling, and late policy changes creates uncertainty and undermines careful long-term planning.
“Those inconsistencies aren’t limited to cars. The £0-rate VED for electric vans was also withdrawn on 1 April 2025, which means fleets are facing a £345 tax bill when they renew – during a period where operational challenges mean demand for those vehicles is already lagging behind the government’s ZEV Mandate targets.
“Fleets are at the forefront of the transition to zero emission transport, and they need timely, consistent tax policy that supports – not disrupts – their investment decisions. A considered revision to the Expensive Car Supplement, clearly communicated and implemented with adequate notice, would give fleets the confidence to continue leading the shift to cleaner mobility.”
