Big changes looming for car owners which could cost you £1000s

Vehicle Excise Duty (VED) – more commonly known as ‘car tax’ – is the tax paid for vehicles which are to be used or parked on public roads. From 1st April 2017, all new cars will face a significant increase in their tax demands during their first year of registration.

Car tax rates depend on a vehicle’s engine size, fuel type, year of registration and CO2 emissions. In terms of banding, the higher the emissions, the higher the rate of tax. Under existing rules, cars emitting up to 100g CO2 per kilometre pay nothing, while those emitting between 101 to 110g pay £20. The introduction of the new rules will see some people paying up to £2,000 per year towards VED.

The first year sees an increased payment of £10-£2,000 tax, depending on the CO2 emissions of the car. In the second year, a flat rate of £140 pa will occur thereafter. Alternatively fuelled cars, i.e. hybrid or bioethanol cars pay £10 less for their first year of tax, and then £130 pa. Unlike the current system, where low-emission petrol and diesel cars are tax exempt, the new VED system will only be free for electric and hydrogen cars. There’s also a new five-year supplement of £310 to pay for cars costing £40,000+. Cars registered before 1st April 2017 will not be affected, and will be taxed according to previous VED.

Some example charges:

The Tesla Model S under the previous VED rate was £0 for 6 years. Under the new rate, it will cost nothing for the first year, but will be charged a £310 surcharge as it costs more than £40,000 – a total of £1,550. Bad news for those going for a zero emissions car.

The Land Rover Discovery SDV6 SE under the previous VED rate was £2,090 for 6 years, and rises to £3,450 under the new rates. Owners will pay £1,200 in the first year, and £450 thereafter due to its £41,600 list price.

For a small car like a Ford Fiesta 1.0T Ecoboost, you would pay no VED under the previous rate. Under the new charges, it would cost you up to £120 in the first year and £700 for the 5 years after – a total of £820.

Who exactly will this change affect? Crucially, those buying cars with low CO2 emissions will face the highest relative rise in the tax. The confusing new system unfairly disadvantages those buyers who want to do the ‘green’ thing (for the environment and their wallets) by opting for a small, efficient petrol or diesel vehicle, or one of the latest hybrids. There have been some theories that this will result in the VED changes actually discouraging drivers from purchasing some of the cleanest vehicles.

One way to get around this change will be to purchase a new car before 1st April 2017. This means that you will be taxed according to the previous VED rate, and will avoid the rising costs. The VED charges also do not apply to cars already on the road, so if you’re buying a second-hand car then your vehicle will be taxed under the old system.



Emily Duff

March 2017

Share this article

Sign up to our e-newsletter

Holly's blog offers helpful tips, thoughtful ideas and her latest news and events.

Important stuff!

Holly and the team have worked in the finance industry for many years but we are not regulated to give you personal financial advice, nor are we regulated by the industry watchdog (although we do talk to them a lot). For every story on this site about a good investment, or something which went up by 10% or made someone £200, we could share a story about a bad investment, something which fell by 10% or lost someone £200. Nothing’s certain when investing so if you’re really unsure, or dealing with complicated stuff like working out what to do with a pension when you retire, we’d really suggest you get some financial advice. Here are some tips on  how to pick a good financial adviser. Or check out Unbiased or VouchedFor. Just remember, commission has been banned now so advisers need to be very clear with you about what you are paying them and when.