Electric car drivers face new £2k luxury tax

In last month’s Budget, the Government said it will “consider” raising the threshold for zero-emission cars, but “only at a future fiscal event”. It conceded that from April the luxury tax will have a “disproportionate impact” on those buying electric cars. However, there is no timeline for when changes will be considered.

Mr Brown, of RSM, added: “While the Government has identified this is a potential issue, it’s not clear why a decision has been kicked down the road. “It could deter some from making a purchase[1] until there is more certainty and slow the growth of sales of new electric vehicles.” While 37,000 more EVs have hit the road in 2024 compared with last year, the total share of sales only equates to 18pc of the new car market.

This is below the Government’s zero-emission vehicle (ZEV) mandate of 22pc, which rises to 28pc next year. Manufacturers have been slashing prices in an effort to sell, yet the average cost of an EV remains north of the luxury car tax threshold. The UK’s most popular electric motor, the Tesla Model Y, starts at GBP46,990.

The levy is triggered when a car’s list price, including optional extras, surpasses GBP40,000. If the buyer negotiates a discount on the purchase, this is not taken into account. Had the threshold risen in line with inflation since its introduction in 2017, the tax would be triggered at GBP51,827.

The Institute for Fiscal Studies has previously branded the levy an “odd and arbitrary way to tax the well-off”.

A Treasury spokesman said: “From April 2025, electric cars will begin to pay VED in a similar way to petrol and diesel cars, ending the exemption for electric cars from the expensive car supplement.

“We recognise the need to ensure EVs are affordable as part of our ambitions for net zero, so we will consider raising the threshold for zero emission cars at a future fiscal event.”

References

1. ^ making a purchase (www.telegraph.co.uk)