From 1 April 2025, major changes are coming to EV taxation. If you own or plan to buy an electric car, here’s what you need to know about the new road tax rules, the Expensive Car Supplement - also known as the Luxury Car Tax or Tesla Tax - and how much it could cost you.

What EV tax changes are coming in April 2025?

Currently, electric vehicles are exempt from Vehicle Excise Duty (VED), commonly known as road tax. However, this will change from 1 April 2025 when EV owners will start paying road tax for the first time.

New zero-emission cars registered on or after 1 April 2025 will pay the lowest first-year rate of VED, which applies to vehicles with CO2 emissions between 1-50g/km. This is currently set at £10 per year. From the second year onwards, EVs will be subject to the standard VED rate of £195 per year (as of April 2025). Zero-emission cars first registered between 1 April 2017 and 31 March 2025 will also have to pay the £195 standard VED rate each year from April 2025. This means that all electric vehicles will now be taxed at the same rate as petrol and diesel cars.

What is the luxury car tax - AKA the Expensive Car Supplement?

A major change affecting higher-priced EVs is the extension of the Expensive Car Supplement, often called the Luxury Car Tax or Tesla Tax. From 1 April 2025, EVs with a list price over £40,000 will be subject to an additional £425 per year on top of standard road tax. This charge applies for five years, meaning affected EV owners will pay a total of £620 per year between years two and six of ownership.

The £40,000 threshold includes optional extras, so even minor upgrades, such as premium paint or an upgraded infotainment system, could push your vehicle into the taxable bracket. This tax is based on the manufacturer’s official price, not the price you actually paid, so discounts or dealer incentives do not count.

How much will the new EV road tax cost?

If your EV was registered before 1 April 2025, it will not be subject to the Luxury Car Tax, even if it cost over £40,000. However, from April 2025, you will need to pay £195 per year in VED. For EVs registered on or after 1 April 2025, the first-year tax will be £10, rising to £195 per year from the second year onwards. If the car costs more than £40,000, an additional £425 per year will apply for five years, bringing the total annual tax bill to £620 during that period. Over six years, this tax could add more than £3,000 to an EV owner’s costs.

Why is this tax controversial?

Many in the industry believe the Luxury Car Tax unfairly penalises EV owners because electric vehicles already have higher upfront costs. In other words, the £40,000 threshold is outdated. Unlike petrol and diesel cars, EVs have higher production costs due to expensive battery technology. The current average price of a new EV is £59,735. In 2024, only 24.1% of petrol and diesel cars were priced above £40,000, compared to over 70% of EVs. This means that even modestly-sized EVs such as the Kia Niro EV or Volkswagen ID.3, could be hit by a tax originally meant for luxury vehicles.

Should you buy and register your EV before 1 April 2025?

If you’re considering buying an electric car, it may be worth doing so before 1 April 2025. EVs registered before this date will not be subject to the £425 Luxury Car Tax and will only pay the standard £195 VED per year. This could save you more than £2,000 in road tax over the first six years. If your chosen EV is close to the £40,000 threshold, be mindful that optional extras could push it over the limit. Registering your EV before the deadline could help you avoid thousands in unnecessary costs.

Can I avoid the 2025 luxury car tax?

The extension of the luxury car tax to electric vehicles will significantly increase the cost of EV ownership, especially for cars priced over £40,000. While this move aligns EVs with petrol and diesel taxation, many argue that the outdated £40,000 threshold penalises family-friendly EVs rather than true luxury vehicles.

If you’re thinking of buying an EV, consider registering before 1 April 2025 to avoid the extra tax. If you already own an EV, expect to pay £195 per year from 2025 onwards. 

But… things could still change

The government may seem hell-bent on whacking electric car buyers with the Expensive Car Supplement, but it does have a card up its sleeve if it needs to curry favour with both buyers and manufacturers. 

Recognising the fact that EVs will be hit disproportionately by the supplement, it said in its 2024 budget statement: “The government recognises the disproportionate impact of the current VED Expensive Car Supplement threshold for those purchasing zero emission cars and will consider raising the threshold for zero emission cars only at a future fiscal event, to make it easier to buy electric cars.” 

That ‘future fiscal event’ is the Spring Statement, which takes place on 26 March, 2025. Should the government feel that the Expensive Car Supplement is likely to attract even more negative press, the threshold for EVs could well be raised. Watch this space…