Government reviewing £40k 'Luxury Car Tax' threshold
In a move that could significantly boost the electric vehicle (EV) market, the UK government is contemplating raising the £40,000 threshold for the Expensive Car Supplement (ECS), often referred to as the 'luxury car tax'. This consideration aims to alleviate the financial burden on EV buyers and stimulate the adoption of zero-emission vehicles.
Understanding the expensive car supplement
Introduced in 2017, the Expensive Car Supplement (ECS) imposes an additional Vehicle Excise Duty (VED) of £425 annually for five years on vehicles with a list price exceeding £40,000. Initially targeting high-end luxury cars, this surcharge was extended to include electric vehicles registered from April 1, 2025. Consequently, EV owners now face an extra £3,100 in taxes over the first six years of ownership, combining the ECS with the standard VED rate of £195 per year from the second year onwards.
Read more about VED and electric vehicles here in our guide to understanding road tax for EVs.
The case for raising the threshold
The average price of a new electric car in the UK has risen to approximately £50,000, influenced by factors such as advanced technology and battery costs. This price point means many mainstream EVs, including models like the Tesla Model Y and Ford Mustang Mach-E, fall above the current ECS threshold. Critics argue that the £40,000 cap, unchanged since its inception, is outdated and inadvertently penalises buyers of mid-market electric cars, counteracting the government's environmental objectives.
Tesla Model Y
Ford Mustang Mach-E
Government's response and industry feedback
Acknowledging these concerns, Minister for the Future of Roads, Lilian Greenwood, indicated in a letter to a local MP that the government recognizes the disproportionate impact of the current ECS threshold on zero-emission vehicles. She stated that measures are being considered to make it easier for mandated sales mixes to be achieved in the coming years .
Industry leaders have welcomed the potential revision. Eurig Druce, Stellantis UK's Managing Director, emphasised the need for a review of the taxation system to reduce barriers for drivers switching to electric cars . Similarly, Ford criticised the imposition of VED on EVs, warning it could slow adoption at a crucial time for the industry.
Implications for EV adoption
The current ECS structure has been identified as a deterrent to EV adoption, particularly among private buyers. In April 2025, battery electric vehicles accounted for just 20.4% of new registrations, falling short of the government's Zero Emission Vehicle (ZEV) mandate target of 28% for the year . Raising the ECS threshold could alleviate financial pressures on consumers and encourage more drivers to consider electric options.
While the government has not specified the new threshold or the timeline for implementation, the potential adjustment signals a commitment to aligning fiscal policies with environmental goals. As the UK strives to increase EV adoption and reduce carbon emissions, revisiting the Expensive Car Supplement threshold could play a pivotal role in making electric vehicles more accessible to a broader range of consumers by lowering their total cost of ownership.
