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‘Envy’ tax to clobber one million drivers who buy an average car this year
Nearly one million motorists buying new cars this year could face the “expensive vehicle supplement”, an annual £425 charge for vehicles with a list price above £40,000. Critics argue that frozen thresholds are drawing ordinary family cars into a tax intended for luxury vehicles, increasing costs for buyers as new-car prices rise.
The levy applies for five years after a car’s second year of registration, adding £2,125 in total, and can also affect second-hand buyers during that period. Jato estimates registrations of qualifying new cars could reach 973,000 in 2026; the industry body SMMT says 70 per cent of new cars now cost £40,000 or more. Electric cars received a £50,000 threshold in April, while the petrol, diesel and hybrid threshold has remained at £40,000 since 2017.
In short
- Rising car prices are bringing more buyers into the £425 annual levy.
- The £40,000 threshold for most cars has been frozen since 2017.
- Qualifying owners pay £2,125 over five years.
Steelman: both sides, in good faith
The strongest fair case each way — we don't pick a winner.
The case for
Those defending the current frozen threshold argue that maintaining a fixed price point at £40,000 serves important revenue and policy purposes, ensuring the tax cannot be eroded by inflation or market changes that would otherwise undermine its effectiveness. The threshold reflects a reasonable judgment about which vehicle purchases represent discretionary spending by people with adequate means to bear additional taxation, supporting a progressive system where higher-value purchases carry higher costs. Adjusting the threshold would create a perpetually moving target that governments could never adequately address, ultimately losing revenue from those purchasing premium vehicles. The distinction between electric vehicles at £50,000 and petrol vehicles at £40,000 demonstrates the tax serves deliberate environmental policy goals.
The case against
Critics contend that the £40,000 threshold, frozen since 2017, has strayed far from taxing luxury vehicles and now catches ordinary family cars in a levy meant only for premium purchases. Since 2017, ordinary inflation and market developments have pushed typical mainstream vehicles across this price point, meaning the tax penalises routine purchasing decisions rather than targeting genuinely exclusive models; with 70 per cent of new cars exceeding £40,000, the levy has become a tax on ordinary motorists rather than the wealthy. Updating the threshold to reflect inflation would restore the tax to its original purpose: ensuring genuinely premium vehicles bear additional costs whilst ordinary family-car purchases remain untaxed as intended.
Explained simply
The expensive vehicle supplement is an annual tax charged on new cars with a list price above £40,000. It costs £425 per year and is paid for five years from a car's second year on the road, totalling £2,125. The tax also applies to second-hand buyers during the applicable five-year period.
The threshold was set in 2017 at £40,000 and has remained unchanged despite rising car prices. This means ordinary family cars that would once have been exempt now trigger the tax, even though it was designed to target luxury vehicles. The situation differs for electric cars, which received a higher £50,000 threshold in April, whilst petrol, diesel and hybrid vehicles remain at the original £40,000 level.
According to the car industry, approximately 70 per cent of new cars now exceed the £40,000 threshold. This has transformed what was meant to be a levy on expensive vehicles into a tax affecting mainstream car purchases for hundreds of thousands of buyers annually.