Starting in April 2025, UK drivers will see a significant increase in Vehicle Excise Duty (VED), commonly known as car tax. Some drivers may face an annual rise of up to £2,745, while even electric vehicle (EV) owners will no longer be exempt. With these changes, drivers must plan ahead to minimize the financial impact. This guide breaks down what’s changing, who is most affected, and how you can avoid overpaying.
Tax
The UK government is increasing VED rates to encourage drivers to switch to greener vehicles. Here’s an overview of the key changes:
| Vehicle Type | Current Rate | New Rate (2025) | Increase |
|---|---|---|---|
| Most vehicles | £270 – £2,745 per year | £540 – £5,490 per year | Up to £2,745 |
| Electric vehicles (EVs) | £0 | £10 per year | £10 |
| EVs over £40,000 | £0 | £410 per year (years 2-5) | £410 annually |
For high-emission vehicles, the annual VED could double, leading to steep increases in car ownership costs.
Why the Increase?
VED is a tax drivers pay annually to use their vehicles on UK roads. The government calculates the tax based on a car’s CO₂ emissions, engine size, and value. The upcoming changes aim to:
- Reduce pollution by discouraging high-emission cars.
- Introduce fairer taxation for electric vehicles.
- Raise government revenue for road maintenance and environmental initiatives.
Who is Affected?
Drivers of petrol or diesel cars with high CO₂ emissions will experience the biggest increases. Vehicles producing more than 255g CO₂ per km will see their tax double, with some owners paying up to £5,490 annually.
Electric Vehicle Owners
EVs have been exempt from VED, but from 2025, they will be taxed at £10 annually. Owners of EVs priced over £40,000 will face an extra £410 per year for the second to fifth years of ownership.
Average Family Cars
Most drivers will see their VED rise from around £270 to £540 per year. While not as extreme as luxury cars, this still represents a significant increase for many households.
How to Reduce Costs
While the changes are unavoidable, there are several ways to minimize your expenses.
Switch to an Electric
One of the best ways to lower VED costs is to switch to a low-emission or electric vehicle. While EVs will now be taxed, the £10 annual fee is far lower than the rates for petrol and diesel cars.
Many manufacturers are now offering more affordable EVs, and second-hand electric cars are becoming more widely available. Switching to an EV now could save you money in the long run.
Shop Around for Cheaper Car Insurance
Car insurance costs have also been rising, with an average increase of 12.7%. You can reduce your insurance costs by:
- Comparing quotes from multiple providers.
- Increasing your voluntary excess.
- Bundling insurance policies (home and car) for discounts.
- Taking advantage of low-mileage or safe driver discounts.
Some drivers have saved over £2,000 annually just by switching insurers.
Pay Insurance Annually
Many insurers charge extra for monthly payments, adding interest to each installment. Paying your insurance premium in one annual payment can save up to £225 per year.
Consider Leasing Instead of Buying
If buying a new electric car isn’t an option, leasing could be a smart alternative. Many leasing plans include VED, insurance, and maintenance in a single monthly payment, making costs more predictable. Car subscription services are also becoming popular, offering short-term leases on electric vehicles with flexible terms.
The upcoming VED hikes will significantly impact UK drivers, with some facing thousands in additional costs. However, by planning ahead—whether by switching to an EV, finding better insurance deals, or considering leasing—you can take steps to reduce the financial burden. Knowing these changes now will help you make informed decisions and avoid overpaying in the future.
FAQs
When do the new VED rates take effect?
The new tax rates will apply from April 1, 2025.
How much will electric vehicles be taxed?
EVs will be taxed £10 annually, with an extra £410 for high-value models.
Which cars are most affected by the tax increase?
High-emission petrol and diesel cars will see the biggest tax hikes.
Can I reduce my VED costs?
Yes, by switching to a low-emission or electric vehicle.
Is leasing an EV a good option?
Leasing can help avoid high upfront costs and include tax in monthly payments.
