Budget 2017: New road tax rates – what we know so far

Published 03 March 2017

The 2017 road tax rules are just weeks away. From 1 April 2017, all new cars will be taxed against three new VED bands - zero, standard and premium - with taxation calculated on a combination of emissions and the list price of the vehicle.

The Budget 2017 could bring further changes for cars and vans, with revisions expected to bring the existing VED pricing for cars and vans inline with the RPI inflation rate. However, we'll have to wait until the Philip Hammond's first ever Budget on 8 March to find out more.

How much is my road tax?

For those of you who are not up to speed with the 2017 VED changes, here’s a summary of what will happen from 1 April.

The 2017 VED rules - which only affect new cars bought after 1 April - will add more than £500 to the long-term running costs of Britain’s most-popular and eco-friendly vehicles, while providing significant benefits for some of the most-polluting cars.

This means that only cars that emit zero CO2 and cost less than £40,000 to buy new will qualify for zero VED. The majority of petrol and diesel cars will pay a standard rate of £140 a year, while hybrids will pay slightly less, £130 per year.

As well as new VED bands, the government is introducing new first year rates, which are calculated on the CO2 emission levels. Most family car buyers will pay between £100 - £160 for the first year rate, while the most polluting cars (255g/km+ of CO2) will pay as much as £2000. All cars registered before April 1 2017 will continue to be taxed against the old CO2 emission levels. 

Looking for a tax free car before the new rules come into force? Top 10 cars to buy before the VED changes

How will the new VED rules affect me?

The new rules will only affect new car buyers. The current VED bands - which are taxed against CO2 emission levels - will remain in place for all cars registered before the 1 April 2017. This means cars that emit up to 100g/km of CO2 (band A) will continue to pay zero VED. The rates for other bands (B - M) will most likely rise with inflation. 

Will electric car owners have to pay road tax? 

Most new electric vehicles will continue to qualify for zero VED for the foreseeable future. However, electric cars that cost more than £40,000 to buy will be liable for the premium car tax rate. That means owners will pay nothing for the first year rate and £310 for the following five years. Once the car is older than six years, it will again qualify for zero VED.

Tell me about the new VED bands

They're surprisingly simple. 'Zero' emission cars pay nothing, 'Standard' cars pay £140 after the first year and anything that costs more than £40,000 to buy will pay an additional premium of £310 on top, for a total of £450, after the first year. There are also new first year rates, spanning from £10 to £2000, depending on how much CO2 the car produces. 

Ved -rates _530x 287 (1)

Will owners of expensive cars be worse off?

Some will, given the hike in the first year rate, but a number of polluting cars will benefit from the new system. Buyers of expensive hybrids will be punished, although the government claims that 95 per cent of petrol and diesel car owners will pay £140 a year. 

How will this impact owners of hybrids and low emission vehicles

Badly. All hybrid buyers will have to pay for road tax, although it won't be quite as much as petrol or diesel cars. Instead, a new first year rate will be introduced and owners will then be required to pay £130 for every year after - a move that will add up to £500 to the long-term running costs of some of Britain’s cleanest and most efficient cars. However, if you already own a hybrid (or buy one before the 1 April 2017) your VED bills will remain unchanged.

Is the government going to make more money out this new system?

Even by the government’s own predictions, the new VED system will net an additional £1.4 billion over the next four years. There is some good news though; all of the money raised from VED should eventually be used to improve the UK's roads.  

What about vans?

VED for commercial vehicles remains unchanged, for now.

And classic cars? 

No change there either. Owners will continue to pay the standard VED rates for pre-2001 cars.


valmiki    on 3 March 2017

What if you buy a car brand new from a broker, and it comes under the 40k limit (even though list price would be over) do you still pay the extra tax?

Johnb_5927    on 4 March 2017

Yes, the 40k threshold is based on the list price of a vehicle and any manufacturer fitted extras, not the invoice price.

craig staples    on 5 March 2017

taxing people for not bee able to afford new cars yes nice one

Darryl_uk    on 5 March 2017

Read the article Craig.

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