Road tax (or vehicle excise duty) will go up in 2017

The budget announced on 8 July 2015 will introduce new road tax rates (also known as Vehicle Excise Duty or VED) for cars registered on or after 1 April 2017.

Under the new regime, cars are divided into three bands. CO2 emissions still divide cars into one of 13 bands but this only applies to first year tax costs. From the second year onwards, the three band system takes over.

These three bands are: zero emissions, standard and premium. A zero-emission car will pay no tax whatsoever (unless it costs more than £40,000) and standard cars will cost £140 from year two. Any car that emits any CO2 at all and costs more than £40,000 will cost £450 from the second year until the sixth year after registration, when it’ll cost £140 per year again.

This means that, from 2017, the only cars that will be free to tax will be all-electric cars that cost less than £40,000. Even owners of low-emission hybrids that are currently free to tax will have to pay.

Remember, these changes won’t apply to your current car – only to new cars registered from April 2017.

Here are the bands in full:

VED bands for cars registered on or after 1 April 2017
CO2 emissions (g/km) First year rate Standard rate (year two onwards) Standard rate (year two onwards) for cars costing >£40,000 – payable for five years
0 £0 £0 £310
 1-50 £10 £140 £450
 51-75 £25 £140 £450
 76-90 £100 £140 £450
 91-100 £120 £140 £450
 101-110 £140 £140 £450
 110-130 £160 £140 £450
 131-150 £200 £140 £450
 151-170 £500 £140 £450
 171-190 £800 £140 £450
 191-225 £1,200 £140 £450
 226-255 £1,700 £140 £450
 More than 255 £2,000 £140 £450

Road tax is back

The Chancellor has announced that the money raised from these VED payments will actually be put into a road fund to repair the nation’s roads. That means we’ll be able to go back to giving Vehicle Excise Duty its old-fashioned name: road tax.

What do these changes mean?

The banding changes mean owners of full-electric cars with emissions of 0g/km of CO2 will get free tax. However, if your electric car costs more than £40,000 you’ll have to stump up £310 per year. So buyers can look forward to shopping for electric cars that fall under the magic £40,000 barrier to avoid a significant outlay in tax.

Here are some examples of how road tax will work for modern cars (if you can still buy one on or after 1 April 2017).

Real-world examples

Here we’ve taken some normal cars and demonstrated the changes in costs from the current (2015) tax system to the 2017 system.

Nissan Leaf – all-electric

The Leaf is simple – it has no CO2 emissions because it’s fully electric and costs less than £40,000. That means it’s free to tax under the current system and also under the proposed 2017 tax band system.

Extra cost over three years: £0

The Tesla Model S wont be free to tax from 2017

Tesla Model S – all electric

The Tesla Model S is a luxury electric car that is currently free to tax. Come 2017, it’ll be free to tax in the first year because it has no CO2 emissions, but then sting you with £310 per year afterwards because it costs more than £40,000. The 2017 system means not all electric cars will be free to tax like they currently are.

Extra cost over three years: £620

Volkswagen Golf – 2.0-litre diesel, 148hp, 109g/km CO2

The 2.0 TDI Golf Match would currently cost nothing for the first year, then £20 per year to tax under the current system.

Under the 2017 system it’d cost £140 per year to tax every single year.

Extra cost over three years: £380

Audi A6 Allroad – 3.0-litre diesel, 269hp, 149g/km CO2

Drivers of big diesels will be worse off too

The A6 Allroad is a relatively frugal – but large-engined – diesel estate car that costs more than £40,000. It’d currently cost you £145 per year to tax – or £435 over three years.

Under the 2017 system it would cost £200 to tax for the first year, and £450 for each year thereafter – a total of £1,100. That’s £665 more over three years.

Extra cost over three years: £665

More budget news

Read our full July 2015 motoring budget round-up for more information on the changes that’ll effect UK drivers over the coming years.

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