VED and Vehicle Choice in 2025: With Over Half of New Cars Priced Above £40k, Is Reform Coming?
As of April 2025, all new electric vehicles (EVs) are no longer exempt from Vehicle Excise Duty (VED) a move that includes the £390 per year “expensive car supplement” for models with a list price over £40,000.
This tax change has already come into effect and it’s affecting the majority of the new vehicle market. With over 5,200 new cars available in the UK and an estimated 2,400 priced above £40,000, the Treasury is now under pressure to reconsider the fairness and impact of this threshold.
From a pure Electric perspective there are currently about 2,700 variants to choose from but 1,800 of them (67%) have a list price of over £40,000 and are impacted by the changes, this is already built into lease rates going forward.
A Tax That Affects Almost Half the Market
The £40,000 “expensive car” threshold was originally introduced to discourage luxury petrol and diesel purchases but today, many mass-market EVs, family SUVs, and business models exceed that price due to rising battery and technology costs.
That means:
Over 57% of new cars now automatically attract an extra £390 per year for 5 years.
EV drivers, who were previously incentivised, are now being taxed on vehicles that are not truly “luxury” in today’s market.
Treasury Considers Raising the Threshold — or Scrapping It
In light of this disconnect, the Government is reportedly reviewing the threshold, with options on the table including:
Raising it to £50,000 or £60,000
Removing it entirely for zero-emission vehicles
Replacing it with a CO₂-based approach more in line with clean-air goals
Fleet operators, industry groups, and EV advocates are calling for change, noting that this policy could undermine EV adoption at a critical moment in the net-zero journey.
What This Means for Drivers and Fleets in 2025
If you're choosing a new car today, especially through fleet or salary sacrifice schemes, the VED supplement is now a live cost consideration.
For Example:
A £41,000 EV like a Tesla Model Y or Kia EV6 now comes with £1,560 in extra VED over 5 years (the extra is paid in years 2-5)
Many family SUVs, even petrol-hybrids, are similarly affected
Vehicle Selection: Time for a Strategy Shift?
1. Consider the Total Cost of Ownership (TCO)
VED is now a non-negotiable input — even for EVs. Use real-world cost comparisons that include tax, insurance, and leasing variables.
2. Review Your Fleet List
Look at how many of your policy-approved vehicles fall above £40,000. You may need to rebalance toward sub-£40k models or prepare messaging for drivers who’ll pay more.
3. Watch for Policy Updates
If the Government raises or scraps the threshold in the months ahead, it could make higher-end EVs (and some hybrids) much more cost-effective again.
LetsTalk Leasing Perspective
Tax clarity fuels confidence. Fleet operators, leasing brokers, and employees using salary sacrifice schemes all need predictable, justifiable costs — not outdated thresholds that penalise cleaner choices.
Until a decision is made, it’s critical to:
Stay informed
Factor in all costs
Support drivers with transparent education
Need Help Navigating the 2025 VED Landscape?
We’re already helping businesses adjust fleet lists and funding strategies post-VED change. If you need a second opinion on your vehicle banding or want to optimise cost-efficiency for your drivers, let’s talk!