426,000 DRIVERS HIT WITH LUXURY VEHICLE TAX
More than 420,000 drivers were dragged into paying luxury vehicle tax last year thanks to frozen thresholds, figures show.
The number of motorists caught in the tax net increased by 42pc, up from 299,000 in the space of just two years, according to data obtained from the Driver and Vehicle Licensing Agency (DVLA).
The luxury vehicle levy, which costs £2,125 over the course of five years, is triggered if a car is bought for more than £40,000.
This threshold has been frozen since 2017 for petrol, diesel and hybrid vehicles, meaning inflation has helped drag even modest models into paying the levy.
Electric vehicles (EVs) were previously excluded from the charge but were brought into scope from April. The rule change affected 119,000 EV buyers who bought their vehicle for more than £40,000 in the five months to September.
Brian Macdowell, of the Alliance of British Drivers lobby group, said: “It should never have been brought in in the first place. It’s nothing more than the politics of envy.
“For a government to continue to put a stealth tax on buying a vehicle, it is nothing but an attempt to raise revenue by the back door. Taxing so-called luxury vehicles is a backward move.”
The controversial surcharge, known as the “expensive car supplement”, is payable annually between the second and sixth years of a car’s lifespan. It currently costs £425 a year and is uprated each April in line with inflation.
Rachel Reeves, the Chancellor, announced in last month’s Budget that the threshold will rise to £50,000 next year – but only for fully electric vehicles. The move is hoped to boost EV uptake, but will also cost the Treasury £1.2bn in lost tax revenue over the next five years.
It means a two-tier system will be formed with hybrid, petrol and diesel cars remaining on the lower £40,000 threshold.
Had the threshold risen in line with inflation since its introduction in 2017, the tax would only be levied on vehicles costing £53,968 or more.
The eight-year freeze means mainstream models such as the VW Golf Match, Peugeot 5008, and top-of-the-range Kia Sportage are now liable for the premium surcharge.
Ben Welham, of retailer Marshall Motor Group, said: “These are vehicles that many drivers wouldn’t consider expensive by today’s standards.”
Figures show that hybrid models are the most common fuel type attracting the luxury car tax. A little over 116,000 were liable in 2022-23, but the figure has more than doubled to 248,000 in 2024-25.
Data acquired through a Freedom of Information (FOI) request showed that a total of 426,758 drivers paid the levy in 2024-25, 42pc more than the 299,553 drivers in 2022-23.
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“Hybrids are increasingly common and have become the go-to choice for families who want fuel efficiency without going fully electric,” Mr Welham said. “But a hybrid SUV can easily tip over £40,000 when it’s equipped with the safety and tech features many buyers expect today.
“Many of these are modern, practical family cars caught in a tax bracket intended for cars with a more premium feel.”
A lesser-known quirk of the tax is that the annual levy remains payable even when the car changes hands, regardless of the secondhand purchase price.
For example, a driver buying a four-year-old car for £20,000 today will still have to pay the premium tax for another two years if the vehicle was worth more than £40,000 when new.
Mr Macdowell said: “There is no justification to charge for multiple years and to pass the tax burden onto another driver – it’s outrageous.”
A Treasury spokesman said: “It’s right that owners of luxury cars should contribute more, helping to fund improvements to our roads and stronger public services.
“Two-thirds of new petrol, diesel and hybrid cars still fall below the expensive car threshold, and this Government is backing drivers by freezing fuel duty. The increased threshold for electric vehicles will encourage more people to switch to cleaner vehicles, and save over a million drivers up to £440 per year.”
2025-12-04T17:10:49Z