EV owners face £200 annual car tax as Rachel Reeves ends exemption

Key facts

• Electric vehicles registered on or after 1 April 2025 paid £10 from April 2025; from second payment onward, they pay £195.
• EVs registered between 1 April 2017 and 31 March 2025 pay the standard rate of £195.
• EVs registered between 1 March 2001 and 31 March 2017 pay £20.
• Standard VED rate for all cars registered after 1 April 2017 rises to £200 from 1 April 2026.
• Cars with list price over £40,000 (or £50,000 for EVs) incur an additional £440 luxury car tax, total £640.
• Fuel duty is 52.95p per litre, set to rise in September 2026; average petrol price is 153.2p per litre.
• Over 473,000 electric vehicles were registered in 2025, a 23.4% market share.
• Millions of motorists may receive compensation from the car finance scandal in coming months.

End of the road for EV tax exemption

From 1 April 2026, drivers of electric vehicles will no longer enjoy free road tax. Chancellor Rachel Reeves has confirmed that the zero-rate Vehicle Excise Duty (VED) exemption for EVs ends, replaced by a flat annual fee of £200. The change, part of the Autumn Budget, affects all electric cars registered after 1 April 2017, which will now pay the standard rate. For EVs registered on or after 1 April 2025, the first year's tax was set at £10, but from the second payment onward, owners face the full £195 standard rate. Those with EVs registered between 1 April 2017 and 31 March 2025 already pay £195 annually. Older EVs, registered between 1 March 2001 and 31 March 2017, are subject to a £20 fee. The RAC advises that from April 2026, the standard tax rate for all petrol, diesel or hybrid cars registered after 1 April 2017 rises to £200. Paying six months' tax costs £110, or £105 via direct debit; 12 monthly instalments total £210.

Luxury car surcharge and fuel duty rise

Vehicles with a list price exceeding £40,000 (or £50,000 for electric cars) incur an additional 'luxury car tax' of £440, bringing the annual VED cost to £640. This surcharge applies to many premium EVs, further increasing ownership costs. Fuel duty remains at 52.95p per litre, but is scheduled to rise in September 2026. Currently, nearly half of what motorists pay for fuel is tax. The average petrol price stands at 153.2p per litre. The combination of higher VED and future fuel duty increases is expected to squeeze household budgets.

Impact on EV adoption and market

The demand for electric vans and cars has accelerated, with over 473,000 electric vehicles registered in 2025, capturing a 23.4% market share. However, the new tax could deter potential buyers. The RAC warns that motorists may be put off purchasing EVs because of the removal of the tax exemption. The Labour government uprated VED in line with inflation for cars, vans and motorcycles at the start of April, raising the standard rate from £195 to £200. This affects millions of drivers, who now face higher costs to keep their vehicles on the road.

Car finance scandal compensation on horizon

Millions of motorists could soon receive compensation from the car finance scandal, as the Financial Conduct Authority investigates historical commission arrangements. The scandal involves lenders overcharging customers on car finance agreements, potentially leading to widespread redress. Chancellor Reeves unveiled the new car tax measures in the Autumn Budget, which also included changes to VED rates. The compensation process is expected to begin in the coming months, offering some relief to drivers hit by higher motoring costs.

Broader motoring law changes and outlook

Drivers face a raft of new motoring laws introduced over the last month, including higher VED rates and the end of the EV exemption. The RAC provides detailed guidance on how tax bands vary by registration date, fuel type, and emissions. With the start of the new financial year, millions are bracing for extra costs. The government's push to tax EVs reflects a shift in fiscal policy as the electric vehicle market matures. Whether the new tax will slow the transition to zero-emission vehicles remains an open question.

The bottom line

• Electric vehicle owners will pay £200 annual VED from April 2026, ending a long-standing tax exemption.
• The standard VED rate for all cars registered after 1 April 2017 rises to £200, with luxury car surcharge adding £440.
• Fuel duty is frozen at 52.95p per litre until September 2026, when it is set to rise.
• Over 473,000 EVs were registered in 2025, but the new tax may dampen future adoption.
• Millions may receive compensation from the car finance scandal in the coming months.
• The Labour government's VED changes are part of broader budget measures affecting all motorists.