What is the luxury car tax supplement? Expensive car VED explained
Electric cars are now subject to luxury car tax, but at a higher price threshold than petrol cars. Here's everything you need to know...
If you’ve bought a new car in the past few years, you might be familiar with the term ‘luxury car tax’, or as it’s more formally known, the expensive car Vehicle Excise Duty (VED) supplement. But it’s not always obvious what this tax refers to and what it means for car buyers — so we’ve rounded up everything you need to know.
Introduced by the Government in April 2017, the expensive car supplement is an additional fee levied on cars that cost more than £40,000 new. It’s part of the VED, or ‘road tax’, that car owners pay annually. Previously, electric cars were exempt from the £425 flat rate that is levied on all new petrol and diesel cars costing more than £40,000. This changed on 1 April 2025, with hybrid and electric car owners having to pay the same rate as drivers of petrol and diesel cars.
Since, then, in a small concession to EV owners, the Government has increased the price at which EVs are subject to the tax to £50,000. This change applies from April 2026, but is being applied retrospectively to cars sold from April 2025-on.
The expensive car supplement is an additional fee that’s payable in years two to six of the car’s life. It’s important to note that it applies to the total list price of the car, so it will include any optional extras added to a sub-£40k car (sub £50k for an EV), and won’t be removed if you get a discount on a £40k-plus vehicle.
You can avoid paying the luxury car supplement by removing one or two options to keep the car’s price below the relevant threshold. It’s also important to check a car’s list price if you’re offered a discount, in case the full price exceeds that threshold.
How much does luxury car tax cost?
Currently, the expensive car supplement rate is £425 a year for the five years following the first tax payment that’s made when the car is a year old. That’s on top of the standard second-year-onwards rate of £195 – which means you’ll be paying £620 a year if you buy a car that costs upwards of £40,000, until the car is six years old — that’s a total of £3100 extra in VED over six years.
Does luxury car tax apply to electric cars?
Although electric vehicles (EVs) were originally exempt, they too are now subject to luxury car tax, although they will be subject to a £50,000 price limit from April 2026. This means that a much larger number of new electric cars will now be exempt. The changes apply retrospectively to cars registered on or after 1 April 2025 — so if you bought a new electric car priced between £40k and £50k after that date, you will no longer have to pay the supplement.
In April 2025, the Government announced that new electric cars with a list price of more than £40,000 would also be subject to the luxury car supplement. However, in November 2025, the Government announced that from April 2026 the list price threshold for EVs will rise to £50,000.
Under regulations introduced by the previous Conservative government as part of the Zero-Emission Vehicle (ZEV) Mandate, it is required that EVs account for 28% of all new car registrations in the UK in 2025. Despite this, sales continue to lag behind this target, with EVs representing just 26.4% of the current market share.
Many EVs are still subject to high production costs, and, as a result, the majority have starting prices above £40k. In fact, the current average price for an electric car is around £48,000, which means many electric cars that would have been subject to the luxury car supplement are now exempt. However, as electric car sales continue to lag behind government targets, hitting drivers with additional costs could further hinder EV uptake.
This is why, as part of the What Car? EV Manifesto, we’re calling on the Government to remove the luxury car VED supplement on EVs along with other incentives to encourage people to buy electric cars.
Does luxury car tax apply to secondhand cars?
Luxury car tax applies to secondhand cars that were registered after 1 April 2017 and that had a list price of more than £40k when new. It will also apply to secondhand EVs registered after 1 April 2025.
While secondhand EVs registered before 1 April 2025 will not be subject to luxury car tax, they will be required to pay the standard VED rate of £195 a year from 1 April.
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Read more: How much is car tax: VED rates explained >>
FAQs
Luxury cars tend to offer superb refinement and comfort, alongside high-quality interiors and the latest technology. However, you’ll have to have a pretty big budget to get your hands on one.
The £40k VED rule, known as the expensive car supplement or ‘luxury car tax’, is an additional rate on cars with a list price of more than £40,000, which is paid alongside the standard rate of annual road tax
From 1 April 2025, the standard VED rate for all cars was changed to £195 per year after the first year of ownership. Cars with a list price of more than £40,000 pay an additional £425 from years two to six, a total of £620 a year, or £3100 over six years.
