In 2025, UK drivers will face significant increases in Vehicle Excise Duty (VED), commonly known as car tax. With some drivers paying up to £256 more annually, this change could strain household budgets. However, knowing the new rates and looking into money-saving strategies can help minimize the financial impact. Here’s everything you need to know about the VED changes and practical steps to avoid overpaying.
Overview
VED is an annual tax paid by vehicle owners to drive on public roads in the UK. The amount is based primarily on a vehicle’s CO₂ emissions, but engine size and age can also affect the rate. The UK government’s 2025 changes aim to reduce pollution by encouraging the use of low-emission and electric vehicles.
| Vehicle Type | Current Rate | New Rate (2025) | Increase |
|---|---|---|---|
| Most Vehicles | £270 – £2,745/year | £540 – £5,490/year | Up to £2,745 |
| Electric Vehicles (EVs) | £0 | £10/year | £10 |
| EVs over £40,000 | £0 | £410/year (years 2-5) | £410 |
The new rates take effect from April 1, 2025, and will impact nearly all drivers, including those with electric vehicles.
Reasons
The government’s goal is to reduce vehicle emissions and promote greener transport. High-emission vehicles will see the biggest increases, while electric vehicles remain the most cost-effective option. For example, cars emitting over 255g of CO₂ per kilometer could see their annual tax double, while EV owners will pay just £10 annually, and only those with luxury EVs will face an additional £410 tax from the second to fifth years of ownership.
Impact
The changes will affect drivers differently based on their vehicle type and emissions. Here are some examples:
| Vehicle Type | Current Tax | New Tax 2025 | Annual Increase |
|---|---|---|---|
| Family Car (Average Emissions) | £270 | £540 | £270 |
| Luxury Car (High Emissions) | £2,745 | £5,490 | £2,745 |
| Electric Vehicle (<£40,000) | £0 | £10 | £10 |
| Electric Vehicle (≥£40,000) | £0 | £410 | £410 |
If you own a high-emission luxury car, your VED could double, adding a significant cost to your yearly budget. Electric vehicle owners will also start paying a small tax, but it remains considerably lower than that of traditional vehicles.
Savings
With these tax hikes, drivers need to explore ways to cut costs. Here are some practical tips:
- Switch to an Electric or Low-Emission Vehicle: Electric vehicles will cost only £10 annually in VED, making them a cost-effective option. Affordable EV models are becoming more accessible, offering good range and performance at lower prices.
- Shop for Cheaper Insurance: Car insurance premiums have risen by an average of 12.7% in the past year. Compare quotes from different insurers to find better rates, which could save you up to £2,436 annually.
- Pay Insurance Annually: Monthly payments often include interest fees. Paying your insurance annually can save you around £225 each year.
- Seek Discounts: Many insurers offer discounts for low mileage, clean driving records, or bundled policies like home and car insurance.
- Consider Leasing or Subscription Services: Leasing an electric vehicle or using a car subscription service can provide an eco-friendly car with lower upfront costs, including maintenance, insurance, and tax.
Future
The VED increase in 2025 is a clear signal that the UK government is committed to reducing emissions and encouraging the adoption of cleaner vehicles. Drivers can expect further incentives for green transport and possibly more stringent taxes on high-emission vehicles in the future.
While the 2025 VED changes pose financial challenges for UK drivers, they also present an opportunity to rethink vehicle choices and adopt cost-saving measures. Switching to electric vehicles, securing affordable insurance, and looking into flexible leasing options can help mitigate the impact of rising taxes. Being proactive now will ensure that you are well-prepared for the upcoming changes and can avoid unnecessary expenses in the future.
FAQs
When will the VED changes take effect?
The new VED rates will take effect from April 1, 2025.
How much will electric vehicles be taxed in 2025?
Electric vehicles will be taxed £10 annually from 2025.
What is the highest VED increase in 2025?
High-emission vehicles may see up to £2,745 increase annually.
How can I reduce my VED costs?
Switch to an electric or low-emission vehicle to save on VED.
Will car insurance premiums also increase?
Yes, car insurance premiums have already increased by 12.7% on average.
