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What Tax Do You Pay on a New Car?

What Tax Do You Pay on a New Car?

Like everything we buy, cars are subject to various forms of taxation. 

In this article, I’ll go over the different taxes you should expect to pay when buying a car, and how they are set to differ with the upcoming April 2025 budget changes. I’ve also included some examples of different cars, so you can estimate exactly how much tax you can expect to pay before and after April 2025.

What are all the Types of Vehicle Taxes?

It can be confusing to get your head around each and every tax you may have to pay, so before we start, here’s a summary of them:

  • VED: Also known as Road Tax, there are two types to be aware of, especially if you are looking at buying a brand-new car
    • First-year VED: a new car's first year is taxed at a different rate than subsequent ones
    • Second year onwards VED: the VED rate owed every year after year 2
  • VAT: Value-added tax, payable by everyone who isn’t buying as a business - set at 20% - though it is usually included in the advertised price on cars
  • Expensive Car Supplement: also known as the luxury car tax - a tax applied to the first 5 years of a vehicle being registered - it is a blanket additional fee if the sale price of the car exceeds £40k.

VAT and Road Tax on New Cars

There are two main types of tax applied to new cars, VAT and VED. The former is the same Value Added Tax we pay on most items, from tyres to bread. The current rate of VAT is 20%, and is applied to all new cars the same. 

VED, also known as Road Tax, is the charge you pay to drive your car on the public road. 

On cars from 2001 to 2017, this is charged depending on the vehicle's emission levels, with the least polluting cars paying the least. 

How Much VED/Road Tax Will I Pay on a New Car?

From March 2017 cars are taxed on their fuel type, cars registered in 2025 will be subject to the following VED rates, there is also an additional first-year VED payment, only payable upon first registration.

Are Diesel and Petrol Cars Taxed the Same?

If they emit the same amount of CO2, petrol and diesel cars will fall into the same tax band, as long as the diesel meets the RDE2 standard. This is a UK-specific emissions standard, which involves monitoring Nox emissions of diesel vehicles.

Even though diesel cars sold after 2016 are mandated to meet the Euro 6 emissions levels, diesel cars that don’t meet the RDE2 threshold will be subject to a higher first-year VED rate - as seen in the table below.

First-Year VED/Road Tax Rates Before April 2025

First-year VED is based on the vehicle's CO2 emissions level, the table below shows the costs and rates as they are up until April 2025 - when the budget changes will come into force.

CO2 Emissions (g/km) Diesel cars that meet the RDE2 standard and petrol car All other diesel cars Alternative fuel cars
0g/km £0 £0 £0
1 to 50g/km £10 £30 £0
51 to 75g/km £30 £135 £20
76 to 90g/km £135 £175 £125
91 to 100g/km £175 £195 £165
101 to 110g/km £195 £220 £185
111 to 130g/km £220 £270 £210
Over 255g/km £2,745 £2,745 £2,735

Second-Year Onwards VED Rates Before April 2025

From the second year onwards, the following road tax/VED costs will apply.

Fuel Type 12 Month Payment 6 Month Payment
Petrol or Diesel £195 £104.50
Electric £195 £0
Alternative £185 £99

First Year VED After April 2025

The Government's latest budget announced rate changes for VED, specifically targeting electric vehicles. 

These are the VED costs after April 2025

CO2 (g/km) Diesel cars that meet RDE2 standard and petrol cars All other diesel cars Alternative fuel cars
0 £10 £10 £10
1-50 £110 £110 £110
51–75 £130 £130 £130
76–90 £270 £350 £250
91–100 £350 £390 £330
101–110 £390 £440 £370
111–130 £440 £540 £420
Over 255 £5,490 £5,490 £5,490

Second-Year Onwards VED Rates After April 2025

The biggest change to come in April 2025 is for EV owners, whilst their first-year tax has only risen to £10, the second and subsequent years will be charged at the same rate as petrol and diesel cars - £195 per year.

Car Tax Examples

For some clarity, I’ve detailed below the tax implications of a couple of typical UK cars, showing how much tax you can expect to pay on new cars before and after April 2025.

You can see the hike applied to hybrids, and the massivecost of an expensive, high-polluting diesel SUV!

Ford Puma 1.0T Eco Boost MHEV

One of the UK’s most popular cars, a small SUV/crossover with a small petrol hybrid engine. New on-the-road price around £29,000.

Before April 2025: 

  • VAT: 20%
  • First-year VED: £210
  • Second year onwards VED: £180
  • Luxury Car Tax: 0%

After April 2025:

  • VAT: 20%
  • First-year VED: £420
  • Second year onwards VED: £180
  • Luxury Car Tax: 0%

Audi Q7 TFSI 55

A popular luxury SUV, with a large V6 diesel engine, prices start from £65,000.

Before April 2025: 

  • VAT: 20%
  • First year VED: £210
  • Second year onwards VED: £180
  • Luxury Car Tax: N/A

After April 2025:

  • VAT: 20%
  • First year VED: £2,340
  • Second year onwards VED: £190
  • Luxury Car Tax (5 years): £410

How to Check What My New Car Tax Will Be?

I wouldn’t blame you for feeling overwhelmed by the data and tables above, luckily there is a service for checking your car here.

You might need to know your car's Co2 emissions, this can often be found on the dealers website, Autotrader or directly from the manufacturer.

How Much VAT Will I Pay on a New Car?

If you’re buying a new car from a dealership as an individual (not as a business), you will pay 20% VAT. 

Just like buying any other product, the VAT will be collected as part of the total cost, and you do not need to pay it separately.

Thankfully almost all dealers and garages list their vehicle prices inclusive of VAT, so you shouldn’t be in for a shock, but it always pays to check the price includes VAT before getting excited!

This is particularly important if looking at commercial vehicles such as vans or pickup trucks, as these will often be quoted at the ex-VAT price.]

Can I Reclaim VAT?

As a private buyer, you will not be able to reclaim the VAT. If you are buying as a business that is registered for VAT, then any VAT collected on a vehicle sale, both new and used is reclaimed through your normal VAT return.

What is the Luxury Car Tax

Introduced in April 2017, the luxury car tax, or the Expensive Car Supplement as it is officially known is an additional tax applied to cars with a list price over £40,000.

The additional tax applies to the first 5 years the vehicle is taxed.

How Much is the Luxury Car Tax

From April 2025, the Expensive car supplement (luxury car tax) will add £410 per year to your car tax bill, regardless of the fuel type.

This has caused an influx of manufacturers pricing their cars at just under £40,000 to make them more attractive to buyers!

What is the OTR cost?

When looking at dealer websites, the price quoted often has either ‘OTR’ or some kind of footnote reference marker next to it, this refers to the ‘on-the-road’ price. 

Put simply the OTR price includes all fees and other expenses you are likely to pay before you can finally get behind the wheel.

On passenger cars (not commercial vehicles) OTR prices usually include:

  • First-year VED 
  • VAT
  • New number plate costs

The OTR price will generally not include:

  • Car insurance
  • Transport costs 

Author - Joseph Law

Joseph has been writing about cars for over seven years and writing for Bumper for over two, blending his passion for automobiles with a talent for storytelling.

Joseph has written about engineering and cars for Autozilla, Komaspec, and several engineering manufacturers. When he's not writing or tinkering with one of his cars, Joseph dreams of owning an Alfa Romeo 33 Stradale.

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