How Much Will Electric Car Tax Be in 2025

The UK government has confirmed that from April 2025, electric vehicles will no longer be exempt from paying Vehicle Excise Duty, more commonly known as car tax or road tax. For many years, zero emission cars such as pure electric vehicles have benefited from not having to pay this annual charge, a policy designed to encourage adoption. However, as electric cars become more common on UK roads, the government is changing the rules to ensure that all drivers contribute to the upkeep of the road network. Understanding how this will work is important for anyone considering an electric car or already owning one.

The Current Position

At present, pure electric cars are exempt from Vehicle Excise Duty, while hybrid vehicles with low emissions benefit from reduced rates. Drivers of petrol and diesel cars pay based on their vehicle’s CO2 emissions, engine size and in some cases list price. Electric cars have been treated differently to make them more attractive as an alternative to fossil fuel vehicles, but this exemption is coming to an end.

What Will Change in 2025

From April 2025, all new and existing electric vehicles will be subject to Vehicle Excise Duty in the same way as petrol and diesel cars. This means that both brand new electric cars and those already on the road will be brought into the tax system. The first year rate for new vehicles is based on emissions, which for electric cars is zero, so the initial cost will be the lowest rate, currently £10. From the second year onwards, most electric vehicles will pay the standard annual rate, which is set at £165 for petrol and diesel cars in 2025.

Impact of the Expensive Car Supplement

Another important change will be the removal of the exemption from the expensive car supplement. At present, electric cars with a list price over £40,000 do not have to pay the additional £355 a year that applies to high value petrol and diesel vehicles. From April 2025, electric cars with a list price above this threshold will be required to pay the supplement for five years after the first registration. This means that many premium electric models, which often cost above £40,000, will face a higher annual tax bill.

Existing Electric Vehicles

It is not only new cars that will be affected. All existing electric cars registered since 2017 will be brought into the system, paying the standard rate from April 2025. Owners of older electric vehicles will therefore see an increase in running costs, as they will go from paying nothing to paying the same as a petrol or diesel car of a similar age. Although the amounts are relatively modest compared to fuel savings, this is an important factor to consider for budgeting.

Company Cars and Benefit in Kind

Company car drivers will also see changes, although these are being phased in more gradually. At present, electric cars attract a very low Benefit in Kind rate, making them a popular choice for business users. The government has confirmed that the Benefit in Kind rate for electric cars will rise by one percentage point each year from April 2025, reaching 5 per cent by 2028. While this is still significantly lower than petrol or diesel company cars, it will increase the tax cost for those choosing electric as a company vehicle.

Why the Change is Being Made

The shift is largely about fairness and revenue. As more drivers switch to electric, fuel duty revenues from petrol and diesel are falling. The government needs to ensure that all road users make a contribution towards the cost of maintaining and improving the road network. By including electric vehicles in the Vehicle Excise Duty system, the government is broadening the tax base while keeping the charges relatively modest compared to the overall cost of running a car.

The Broader Context of EV Costs

Although car tax will increase from 2025, electric vehicles are still likely to remain cheaper to run overall compared to petrol or diesel. Fuel savings, reduced servicing costs due to fewer moving parts, and exemptions from London’s congestion charge and ultra low emission zone fees all contribute to lower running costs. However, the financial gap between electric and fossil fuel vehicles will narrow slightly once tax charges are introduced.

Preparing for the Change

For anyone considering buying an electric car, it is worth factoring in the cost of Vehicle Excise Duty from 2025. A standard rate of around £165 per year is not significant compared to fuel savings, but the expensive car supplement could add over £1,700 across five years for higher value vehicles. Businesses should also plan for the gradual rise in Benefit in Kind rates for electric company cars. Overall, the policy shift does not remove the financial advantages of electric vehicles, but it does mean that ownership costs will increase slightly.

Final Thoughts

From April 2025, electric cars will no longer enjoy a free pass when it comes to Vehicle Excise Duty. Owners can expect to pay around £165 a year in line with standard petrol and diesel vehicles, with premium models over £40,000 subject to the expensive car supplement. Company car drivers will also face gradual tax increases. While these changes increase the cost of running an electric car, they remain cheaper to fuel and maintain, and the environmental benefits continue to make them an attractive choice. Understanding these upcoming changes allows drivers and businesses to plan ahead and budget for a more balanced tax system where all road users contribute.