Car Tax Changes 2025: Everything You Need To Know

As we progress through 2025, UK motorists are navigating significant changes to the vehicle taxation system. At Carlingo, we're committed to keeping our customers informed about regulations that affect their driving costs and vehicle purchasing decisions. These latest car tax revisions represent some of the most substantial changes in recent years, potentially impacting everything from your annual road tax payments to the type of vehicle you might consider for your next purchase.

Key Changes for 2025

1. Vehicle Excise Duty (VED) Rate Increases

From April 2025, the majority of Vehicle Excise Duty rates have increased in line with the Retail Price Index (RPI) inflation. This represents a continuation of the government's policy to ensure that motoring taxes keep pace with economic indicators while encouraging the transition to lower-emission vehicles.

For cars registered after April 1st, 2017:

• The standard rate has increased from £190 to £200 per year for most conventional petrol and diesel vehicles
• The reduced rate for alternative fuel vehicles (including hybrids) has risen from £180 to £190
• Zero-emission vehicles (primarily electric) remain exempt from standard VED until 2026, though this represents the final year of this exemption

For cars registered between March 1st, 2001, and March 31st, 2017:

• Rates continue to be based on CO₂ emissions bands
• Each band has seen an approximate 5% increase
• Vehicles in the highest band (M) now face annual charges of up to £720

For cars registered before March 1st, 2001:

• The rate for vehicles with engines smaller than 1549cc has increased to £210
• For engines larger than 1549cc, the rate is now £345

2. New First-Year Rates (Showroom Tax)

The first-year VED rates, sometimes called "showroom tax," have seen the most significant adjustments:

• Vehicles emitting 0g/km of CO₂ remain exempt for their first year
• For vehicles emitting 1-50g/km, the rate has increased to £30
• For the highest emission vehicles (over 255g/km), the first-year rate has jumped to £2,745
• The sliding scale between these has been adjusted upward by approximately 7% across all bands

3. Premium Vehicle Surcharge

The additional rate for premium vehicles (those with a list price over £40,000) has undergone significant revision:

• The threshold has increased to £45,000 for 2025
• The surcharge period remains at five years (starting from the second time the vehicle is taxed)
• The annual surcharge amount has increased from £390 to £410
• This surcharge now applies to electric vehicles registered after April 2025, marking the beginning of the phase-out of EV tax benefits

4. Company Car Tax (Benefit in Kind) Adjustments

For business users and fleet operators, important changes to the Benefit in Kind (BiK) taxation system include:

• BiK rates for pure electric vehicles have increased from 2% to 3% for 2025-26
• Plug-in hybrid vehicles with electric ranges over 130 miles benefit from reduced BiK rates
• Conventional hybrids and lower-emission petrol/diesel vehicles have seen BiK rate increases of 1-2 percentage points
• The diesel supplement remains at 4% for vehicles not meeting RDE2 standards

5. Introduction of Road Pricing Trials

Perhaps the most significant development for the future of car taxation is the introduction of regional road pricing trials:

• Several UK cities will begin testing distance-based charging systems
• These trials will monitor mileage and potentially the time and location of journeys
• The government has emphasized these are exploratory measures, but they potentially signal a major shift in how vehicle usage might be taxed in the future

How These Changes Affect You

For Current Vehicle Owners

If you currently own a vehicle, you'll notice:

• An increase in your annual road tax when it comes up for renewal
• The increase will be relatively modest for most standard vehicles (approximately £10-£20)
• Owners of higher-emission vehicles will see more substantial increases
• Premium vehicle owners will continue to pay the additional surcharge if their vehicle is less than six years old and was valued over £40,000 (or £45,000 if registered after April 2025)

For Prospective Buyers

If you're considering purchasing a new or used vehicle, these changes may influence your decision:

• Electric vehicles remain the most tax-efficient choice until April 2026, after which they will begin incurring standard VED
• The higher first-year rates make high-emission vehicles significantly more expensive in their initial registration
• The increased premium vehicle threshold (£45,000) may influence purchasing decisions for vehicles near this price point
• Used vehicles registered before April 1st, 2017, may offer tax advantages for some buyers, as they follow the older emissions-based system

For Business Users

Business users should consider:

• The increasing BiK rates for electric vehicles, though they remain significantly lower than for combustion engines
• The tax advantages of choosing vehicles with longer electric-only ranges
• Potential implications of the developing road pricing systems for fleet management and cost forecasting

Conclusion

The 2025 car tax changes represent another step in the UK's transition toward a more environmentally focused taxation system. While some increases may seem unwelcome in isolation, they form part of a broader strategy to encourage lower-emission transportation while maintaining tax revenues.

For personalized advice on how these changes might affect your specific circumstances or to explore our range of tax-efficient vehicles, visit us at our Harrogate showroom or contact our team today. We're here to help you navigate the changing landscape of car ownership with confidence and clarity.

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This information is accurate as of April 2025. As tax regulations can change, we recommend confirming the latest rates and rules when making purchasing decisions.