What the Frozen £40,000 Car Tax Threshold Means for Almost a Million UK Drivers

• The £40,000 price point that triggers the Expensive Car Supplement on top of standard road tax has stayed the same from the day it was introduced in 2017, even as new car prices have climbed, and analysis of DVLA data by Marshall Motor Group found 426,758 vehicles were liable for it in 2024/25, up 42 percent in two years.
• From April 2026 the Government raised the equivalent threshold for new zero-emission cars to £50,000, while petrol, diesel and hybrid buyers remain stuck at the original £40,000 figure.
• The supplement adds roughly £425 a year on top of the standard rate for five years, from the second year of registration, meaning a car bought just over the threshold can cost well over £2,000 extra in tax before it turns six.

A Threshold Set for a Cheaper Car Market

When the Expensive Car Supplement was introduced in 2017, a list price of £40,000 was a genuine marker of a premium purchase. The average new car cost roughly £26,000 that year, according to Venson Automotive Solutions, so the supplement was built to catch buyers of truly high-end models. Nine years on, with new car prices pushed up by inflation, new safety technology and higher material costs, a £40,000 list price increasingly describes a well-specified family SUV or a mid-range estate rather than anything exotic, and the threshold itself has never been adjusted to keep pace.

The result shows up clearly in DVLA registration data analysed by Marshall Motor Group. The number of petrol, hybrid and electric vehicles liable for the supplement rose from 299,553 in 2022/23 to 426,758 in 2024/25, a jump of 42 percent in just two years. Hybrids alone more than doubled over the same window, from 116,568 vehicles to 247,613, as manufacturers pushed hybrid technology into higher trim levels that now routinely cross £40,000. Industry researcher Jato estimates that almost one million drivers will be paying the supplement across their vehicles this year once every liable car on the road, not just new registrations, is counted.

What the Supplement Actually Costs

The Expensive Car Supplement is charged on top of the standard rate of Vehicle Excise Duty, not instead of it, and it applies for five years starting from the second year a car is registered, so a buyer feels the hit from year two through to year six of ownership. The current supplement adds around £425 a year, which means a car that tips over the £40,000 threshold carries more than £2,000 of additional tax across that five-year window compared with an equivalent model priced just under it. For a driver choosing between two equivalently specified cars either side of the line, that is a meaningfully different total cost of ownership before a single mile is driven, and it is a cost that rarely features in a dealership’s headline monthly finance figure.

Why Electric Car Buyers Just Got a Different Deal

From April 2025, electric vehicles lost their long-standing exemption from Vehicle Excise Duty altogether, bringing them into the standard tax system for the first time. Registrations data shows 119,203 EVs were registered at £40,000 or above between April and September 2025 alone, each one newly liable for both standard VED and the supplement. Ministers have more recently raised the qualifying threshold for zero-emission cars specifically to £50,000 from April 2026, a change ministers have presented as support for EV adoption now that electric cars no longer get a blanket exemption. Petrol, diesel and hybrid buyers received no equivalent adjustment, so a £45,000 hybrid estate is taxed under a threshold that is now ten thousand pounds lower than the one applied to an equivalently priced electric car, a gap that fleet buyers and private purchasers choosing between fuel types will increasingly have to factor into their decision.

What This Means If You’re Shopping Near the Line

Anyone ordering a new car close to £40,000 should check the on-the-road price, not just the advertised list price, as delivery charges, paint options and even some dealer-fitted accessories can be added to the figure HMRC uses to decide whether the supplement applies. Removing a single options-list extra can sometimes bring a car back under the threshold and avoid five years of extra tax. Company car drivers and fleet managers should ask whether a hybrid or petrol model under consideration crosses £40,000 once optional extras are included, as the supplement is charged per vehicle regardless of who is driving it or how many miles it covers. Buyers specifically considering an EV should check the current £50,000 zero-emission threshold before assuming a car is exempt, as that figure is set by the Government and can be revised again in a future Budget. The full rate tables, including exact supplement figures for the current tax year, are published on GOV.UK and should be checked before ordering, as outlets vary slightly in how they describe the exact annual charge.

Company Car Drivers Face a Second Layer of Cost

For anyone driving a company car, the Expensive Car Supplement sits alongside Benefit in Kind tax rather than replacing it, as the two are calculated on entirely different bases. Benefit in Kind is charged on the employee based on the car’s list price and emissions, while the supplement is a flat charge on the vehicle itself that affects the company’s running costs and, indirectly, the choices a fleet manager is willing to offer on a company car list. A quarter of employees expect their employer to review company car policy in light of rising thresholds and costs, according to research from Venson Automotive Solutions, and a car that crosses £40,000 once a few popular options are specified can quietly push a fleet’s total cost of ownership up across dozens or hundreds of vehicles, which is why procurement teams increasingly ask for the exact on-the-road price, inclusive of delivery and options, before signing off a model for a company car list.

None of this is going away soon. The £40,000 figure for petrol, diesel and hybrid cars has sat unchanged through nine years of car price inflation, and nothing announced alongside the new £50,000 electric vehicle threshold suggests ministers plan to revisit the original figure in the near future. Until that changes, drivers buying anywhere near the line face the same calculation every year: check the full on-the-road price against the threshold that actually applies to their fuel type, factor in roughly £2,000 of extra tax over five years if they cross it, and decide whether the specification that pushes a car over £40,000 is worth that cost before signing the order form, rather than discovering it for the first time when the first renewal reminder lands on the doormat a year later.

Leasing adds another wrinkle. On a personal contract hire or personal contract purchase deal, the monthly figure usually already accounts for VED, but a broker’s quote can be generated before the exact specification, including any options, was locked in, so it is worth asking a leasing company directly whether the final build crosses £40,000 and, if so, whether that has been reflected in the monthly price advertised. Used car buyers are not off the hook either: the supplement attaches to the vehicle for five years from its second year of registration regardless of who owns it, so a three-year-old car bought secondhand can still carry two or three more years of the extra charge, and that remaining liability should show up as a specific line item on the V5C and the DVLA’s own vehicle check tool before a used purchase is agreed, so it is worth looking this up before negotiating on price rather than after the paperwork has already been signed.

Want more car content? Add us as a preferred source on Google to your favourites list for the best automotive news and analysis on the internet.

If you enjoyed this article, be sure to follow us on Microsoft Start.

Sources:

• Yahoo Finance / Motor Finance Online: Over 426,000 vehicles subject to UK luxury car tax in 2024: Marshall Motor Group
• Fleet News: Frozen £40k threshold pushes more fleet cars into luxury tax