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Sofia Modiri Dockery
I research and write blogs on what’s happening in the EV-world.
If you’re thinking about purchasing or leasing a new electric vehicle, you might have come across the term “luxury car tax” (or the Expensive Car Supplement).
This refers to an extra Vehicle Excise Duty (VED) charge that applies to higher-value cars in the UK. With recent tax changes for electric vehicles, it’s a factor for EV drivers to be aware of when looking for a new car, to know where the threshold lies and what cars are above or below the limit.
Here’s a breakdown of what the expensive car supplement is, when it applies, and what to keep an eye on.
What Is Luxury Car Tax?
Introduced by the government in 2017, the Luxury Car Tax is an additional Vehicle Excise Duty (VED) charge applied to cars with a list price of more than £40,000, or £50,000 for electric cars.
Electric vehicles were previously exempt from the charge, but from 1 April 2026, eligible EVs are subject to the Luxury Car Tax from their second year of registration. This is paid on top of standard road tax, which is £10 for the first year and £200 per year thereafter.
The Luxury Car Tax itself is £440/year for five years, starting from the second year of registration. The rules also apply retrospectively to most eligible electric vehicles registered from April 2025. This means that, if your car exceeds the relevant list-price threshold, you’ll pay the additional charge for five years, alongside standard VED.
It’s important to remember that eligibility is based on the car’s list price when it was new, not the price you actually paid for it.
What is the Cost of Luxury Car Tax?
The amount you pay is determined by the Vehicle Excise Duty (VED) rates set by the Government for the relevant tax year. For the 2026/27 tax year, the Expensive Car Supplement is £440 per year, in addition to the standard VED rate.
As VED rates can change each tax year, it’s important to check the latest figures on GOV.UK when working out the ongoing cost of a vehicle.
How Long Will I Pay Luxury Car Tax?
The Expensive Car Supplement is typically payable for five years. It starts from the second time the vehicle is taxed, meaning the additional charge usually applies from the second to sixth year after registration.
Once the five-year period ends, you’ll no longer pay the Expensive Car Supplement, although standard VED will still apply. Keep in mind that VED rates can change each year, so the total amount you pay over this period may vary.
Luxury Car Tax and EV Salary Sacrifice
If you’re choosing an EV through a salary sacrifice scheme, the same VED rules apply. Taking a car through salary sacrifice doesn’t exempt it from the Luxury Car Tax, so it’s worth considering the vehicle’s list price when choosing your new car.
However, this doesn’t mean choosing an EV above the £50,000 threshold through salary sacrifice isn’t worthwhile. The tax savings available through EV salary sacrifice can still make it a cost-effective way to drive an electric car, even when the Expensive Car Supplement applies.
The key thing to remember is that the threshold is based on the vehicle’s list price when new, rather than the amount sacrificed from your salary or the monthly cost of the car.
Employers Introducing the Scheme
Employees Going Green
Does the Luxury Car Tax Apply to Used and Leased Vehicles?
Purchasing a used car doesn’t automatically exempt you from the Luxury Car Tax. This fee is associated with the vehicle based on its original list price. If you acquire a qualifying used car while it is still subject to the supplement, you may still need to pay the additional supplement.
The same concept applies to leased cars. Leasing a vehicle does not affect whether it falls under the Expensive Car Supplement regulations.
However, depending on your lease or salary sacrifice arrangement, VED might already be included in your regular payments instead of being a separate charge. It’s a good idea to verify what your agreement covers before choosing a vehicle.
Is My Car Subject to Luxury Car Tax?
To find out if your car is subject to the Luxury Car Tax, check its original list price and first registration date against the relevant threshold. Remember, it’s the car’s list price when new that matters, rather than the price you paid for it.
It’s also worth considering factory-fitted optional extras, as these can contribute to the vehicle’s list price and potentially push it above the applicable threshold.
You can check your vehicle’s current tax status using the GOV.UK vehicle tax checker.
Final Thoughts
Luxury Car Tax is worth being aware of, but with salary sacrifice, there’s no extra admin to worry about. VED and any applicable Expensive Car Supplement are factored into your monthly payment, so it’s all taken care of for you.
Just keep in mind that optional extras can increase your car’s list price, while your vehicle choice will also affect the Benefit in Kind (BIK) tax you pay (fully electric cars BIK is 4% for the 2026/27 period, while PHEVs are 16%).
Other than that? Keep it charged and enjoy the drive!
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Fleet Evolution offers innovative salary sacrifice schemes, helping employers and employees save on costs while promoting eco-friendly electric cars. Enjoy easy setup, free maintenance, and swift activation for any company size.
FAQs
Yes. "Luxury car tax" is a commonly used description, but the official term is the Expensive Car Supplement, which forms part of Vehicle Excise Duty.
No. Whether an EV attracts the Expensive Car Supplement depends on factors including its list price and first registration date.
No, but the rules have changed increasing the threshold from £40,000 to £50,000.
No. An EV obtained through salary sacrifice is not automatically exempt from the Expensive Car Supplement. However, EV salary sacrifice can offer other tax efficiencies for eligible employees.