Budget 2015: Car Tax Changes from 2017

Thursday 9 July 2015

By James Mosley

Budget 2015: Car Tax Changes from 2017

George Osborne has used his latest budget to announce a massive overhaul to the VED car tax system from 2017, as well as a new ring fence that will ensure “every single penny” raised will go directly to highway maintenance by the end of the decade.

It appears that the government has realised that the current VED car tax system is unsustainable, with figures pointing to the fact the three quarters of all new cars sold by 2017 are likely to be tax exempt, therefore of course leaving a rather large hole in the government coffers.

The new 2017 system, which applies to new cars registered from that year, will see new cars taxed between £0 and £2000 for the first year based on emissions, and then a standard rate from then onwards. The standard rate will be £0 only for vehicles with zero emissions and £140 per year for every other vehicle, unlike the current system with the £0 per year tax rate for those vehicles under 100g/km. So called “premium” vehicles costing over £40,000 new will also have to pay an additional £310 surcharge for the first 5 years.

Osborne claimed that the current system is unfair, as those who can afford to buy new cars pay no tax, while those who can only afford a used vehicle have to pay more tax on older less efficient vehicles.

Fuel duty was another talking point and a positive message that it will be frozen for the rest of the year as previously announced, while new cars will now also not require and MOT until they are four years old rather than the current three, potentially saving “billions”.

The new “ring fence” has been warmly welcomed by motoring organisations and will ensure all money earned from VED by the end of the decade will only be spent on highway maintenance, something that hasn’t been the case since 1936.

The new tax system will has of course received mixed reactions as it certainly appears that most motorists will end up paying more. It will mean the end of the low and free tax brackets for low emission cars so it could mean that people will hang onto their current cars for longer. One upshot among performance car enthusiasts is that it will mean that high cost gas guzzling sports cars will only cost £140 per year to tax once they reach five years old, unlike current tax levels that sit around £500 per year.

Table of VED tax bands, cars registered 2017 onwards:

Emissions (g/km of CO2) First year rate Standard rate
0 £0 £0
1-50 £10 £140
51-75 £25
76-90 £100
91-100 £120
101-110 £140
111-130 £160
131-150 £200
151-170 £500
171-190 £800
191-225 £1,200
226-255 £1,700
Over 255 £2,000
Cars above £40,000 pay £310 annual supplement for five years
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