The Frozen £40,000 Car Tax Threshold Is Now Catching Golf GTIs, Ford Kugas and Skoda Kodiaq Drivers

A tax surcharge that was designed for luxury cars is now catching drivers who buy mainstream family vehicles. The Vehicle Excise Duty Expensive Car Supplement applies to any new car with a list price of £40,000 or more, and that threshold has not moved since April 2017. As car prices have risen over the past nine years, the range of vehicles now crossing the line has expanded well beyond sports cars and premium SUVs to include popular models that many buyers regard as ordinary family transport.

How the Supplement Works

The Expensive Car Supplement is an additional charge added to the standard annual Vehicle Excise Duty rate for years two through to six of a car’s life. During those five years, the owner pays the standard VED rate plus the supplement on top. Once the car is six years old, the supplement falls away and the owner pays only the standard rate again.

The supplement currently adds around £425 a year to the annual VED bill for petrol, diesel, hybrid and plug-in hybrid vehicles. Over the five years in which it applies, that adds up to approximately £2,125 in extra tax compared with an identical car listed just below the £40,000 mark. For a car bought on a three-year personal contract purchase deal and then sold, the supplement applies for the first three years of ownership, meaning the finance customer absorbs the full surcharge during the period they hold the car before passing it on.

The key trigger is the manufacturer’s list price, including factory-fitted optional extras, at the point of first registration. A car listed at £39,500 with no options is below the threshold. The same car with a £1,000 paint upgrade becomes a £40,500 car and triggers the supplement for five full years. Once crossed, the threshold applies for the life of that ownership cycle regardless of what the car is later worth on the used market.

Which Cars Are Now Being Affected?

The list of models crossing the £40,000 threshold has grown substantially as manufacturers have raised prices and introduced electrified powertrains that command a significant premium. Cars that now commonly exceed the limit across various trim and powertrain configurations include the Volkswagen Golf GTI, the Ford Kuga FHEV, the Skoda Kodiaq in higher specifications, the Volkswagen Tiguan PHEV, and the Nissan Qashqai e-POWER in upper trims.

Data from automotive research firm Jato Dynamics covering the first half of 2026 indicated that approximately 973,000 new registrations in the UK fell above the £40,000 mark, a figure that has risen sharply since the threshold was set. Range Rover Evoque PHEV models and similarly priced premium-brand SUVs have sat above the line for some time, but the expansion into volume hatchbacks and mid-size family SUVs represents a meaningful shift in who the supplement is targeting in practice.

The spread of plug-in hybrid technology through the mainstream market is a key driver of this trend. A conventional petrol version of a popular SUV may sit comfortably below £40,000 in mid-range specification. Add a plug-in hybrid powertrain, which typically carries a premium of £3,000 to £5,000 over the equivalent petrol, and the same model in the same trim band can cross the threshold without the buyer anticipating it.

Why Electric Car Buyers Are Treated Differently

From April 2026, the government raised the Expensive Car Supplement threshold for fully zero-emission vehicles from £40,000 to £50,000. This adjustment applies to electric cars registered from 1 April 2025 onwards. The reasoning was that battery technology commands a price premium over equivalent combustion models, and that catching mainstream electric cars in a surcharge intended for luxury vehicles would undermine the case for switching.

The result is a situation in which a driver buying an electric car listed at £44,000 pays no supplement, while a driver buying a plug-in hybrid at the same price does. Both cars have a plug and a battery, but the tax treatment differs significantly. Over five years, the PHEV buyer faces an extra £2,125 in VED that the electric car buyer does not.

For buyers weighing up a PHEV against a full electric model at similar list prices, the VED supplement adds a further financial argument in favour of the zero-emission option. It is not the only consideration, but at the point of sign-off it can be a meaningful additional cost that many buyers only discover after the paperwork is done.

Industry Calls for a Threshold Review

The National Franchised Dealers Association has called on the government to review the £40,000 threshold for non-electric vehicles, arguing that a line set in 2017 no longer reflects how the market is structured today. The Alliance of British Drivers has described the supplement as a stealth tax that has expanded its reach through inaction rather than deliberate policy, now affecting buyers who would not consider themselves to be buying a luxury car.

The government has not indicated any plans to raise or index-link the threshold for petrol, diesel, hybrid or PHEV vehicles. While the EV threshold adjustment acknowledges that the original £40,000 line has become difficult to defend in the context of battery car pricing, the same flexibility has not been extended to the combustion and part-electrified market.

What to Check Before You Configure Your Next Car

The first thing to establish when building or selecting a new car near the £40,000 mark is the final list price inclusive of all factory options. The supplement is triggered by the list price at registration, not by the discounted price you agree with the dealer. A car with a £41,500 list price that the dealer discounts to £38,000 still carries the supplement throughout its supplement period, because the list price at registration crossed the threshold.

If you are buying through a personal contract purchase or finance agreement, the supplement will not appear as a separate line on your bill. It is absorbed into the annual VED cost that the finance company or you pay each year. Many PCP customers only become aware of the supplement when they receive their first renewal notice.

Checking the full configured list price before adding any optional extras, and understanding which options might push the total above or below the threshold, can make a difference of several hundred pounds a year. On a car already close to the £40,000 line, the choice between two paint options or a specific trim upgrade can determine whether the supplement applies for the next five years.

For buyers already in the supplement period on a car they own, there is no mechanism for a refund or adjustment if the threshold is raised in future. The supplement is assessed at first registration and the obligation is fixed for the relevant five-year period. Any future threshold changes will affect only new registrations going forward.