Petrol, diesel and hybrid cars with a list price when new exceeding £40,000 pay an additional Vehicle Excise Duty (VED) supplement for five years as well as paying the standard rate of VED, which means those who can afford the most expensive cars pay more than the standard rate imposed on other drivers. As around 88% of all new cars have a list price below £40,000, this was considered a suitable threshold for distinguishing the luxury end of the market.
With regard to used vehicles, whilst the sale price of these cars may be below £40,000, the additional supplement is based solely on the original list price, which provides a clear and easy to understand measure of a car’s value as published by manufacturers. As the additional supplement is only payable for five years, slightly older cars pay the supplement for a shorter period of time.
As with all taxes, VED remains under review and any changes are considered by the Chancellor.