Autumn Budget 2025: ‘Luxury car tax’ threshold increased – Fleet World
The Government is increasing the threshold for the VED Expensive Car Supplement (ECS) for electric cars, as revealed in today’s Budget.
The threshold for the Expensive Car Supplement for fully electric cars will hike up to £50k from April 2026
Announced to mitigate the impact of the new Electric Vehicle Excise Duty (eVED) pay-per-mile charge for EVs, the change will see the threshold for the so-called luxury car tax for zero-emission cars hike up from £40,000 to £50,000, with effect from 1 April 2026 and applied to ZEVs registered from 1 April 2025 onwards.
The move follows rising pressure from across the EV and fleet sector, and will save over a million motorists hundreds of pounds a year, according to the Government.
Dubbed the ‘Tesla Tax’, the Expensive Car Supplement is an additional charge of £425 for cars with a list price of over £40,000 – payable for five years from the date of the first VED car tax payment. It’s been levied on new petrol and diesel cars costing more than £40,000 since 2017 but was also expanded to cover new EVs from 1 April 2025, as announced by the Conservatives in the 2022 Autumn Statement.
While it was originally intended to target high-end luxury vehicles, the £40,000 threshold introduced in 2017 has remained unchanged for eight years and the ECS impacts seven in 10 new electric cars sold in Britain in 2025, according to Auto Express.
Labour said in the 2024 Autumn Budget that it recognised the “disproportionate impact of the current VED Expensive Car Supplement threshold for those purchasing zero-emission cars” and would consider raising the threshold for zero-emission cars at a future fiscal event.
The Chancellor has now announced plans to increase the ECS threshold to £50,000 for fully electric cars.
Alphabet greeted the news. Earlier this year, the business mobility and fleet management services specialist had called for the threshold to be increased to £60,000 – based on a review of 3,508 quotable vehicle models – and to be reviewed annually.
Analysis published by Alphabet had revealed that the number of EVs accessible to consumers for under £40,000 was severely limited.
Speaking following the Budget announcement, Caroline Sandall-Mansergh, consultancy and channel development manager at Alphabet GB, said: “While we welcome that the threshold has increased by 25% to £50,000, it doesn’t go far enough based on manufacturers’ huge capital investment to reach the milestones of zero-emission mandate, which will continue to impact the P11D (list price) of the vehicles over the next few years.
“Our (Alphabet) data reveals that, as of 26 November 2025, the average P11D value of 1,090 quotable EV models is £56,633, meaning that the new ECS threshold will still come up short by 13.27% from April 2026. And for 53% of quotable EVs above the £50,000 threshold, the average P11D value equates to £72,437, which illustrates why the threshold needs to shift further to be truly reflective of the market.”
Meanwhile, Chris Joyce, managing director of Sogo Mobility, said it was “at least a sensible correction” and the Society of Motor Manufacturers and Traders (SMMT) and the National Franchised Dealers Association (NFDA) also welcomed the change.
But David Bushnell, director of consultancy and strategy at Fleet Operations, said: “Movement on the expensive car supplement threshold, from £40,000 to £50,000, offers some limited relief, but at the same time, it will unnecessarily penalise used buyers, with some nearly identical used vehicles being treated differently, purely based on the registration date.”
And John Cassidy, sales managing director at Close Brothers Motor Finance, said: “With the threshold increasing from £40,000 to £50,000, this is an incentive that will not benefit a large number of motorists, many of whom will be looking at cars in lower price brackets. This is not the level of incentive needed to really drive widespread adoption, which is crucial to meeting the Government’s targets.”
Autumn BudgetExpensive Car SupplementLuxury car taxTesla Tax
Natalie has worked as a fleet journalist for over 20 years, previously as assistant editor on the former Company Car magazine before joining Fleet World in 2006. Prior to this, she worked on a range of B2B titles, including Insurance Age and Insurance Day. 
Copyright © all rights reserved.
Fleet World
Subscribe to our magazines and email newsletters
