UK Road Tax (VED) Changes 2026 — What Finance Buyers Should Know

UK Road Tax (VED) Changes 2026 — What Finance Buyers Need to Know

From April 2025, electric vehicles in the UK are no longer exempt from road tax. And 2026 brings further changes that will affect what drivers pay — and how those costs interact with car finance deals. 💰

If you're planning to finance a car in 2026, understanding how Vehicle Excise Duty (VED) works now is important before you commit.

What Is VED and Why Does It Matter for Finance?

Vehicle Excise Duty (VED) — commonly called road tax — is an annual charge that UK drivers pay to keep their vehicle legally on the road. The rate depends on the type of vehicle, its CO2 emissions, and whether it's new or used.

VED isn't typically included in your monthly finance payment. It's a separate cost you'll need to budget for on top of your agreement. But changes to how VED is calculated can significantly affect the total cost of ownership — especially if you're choosing between petrol, hybrid, or electric.

What Changed in April 2025?

The most significant shift was that electric vehicles lost their VED exemption. From 1 April 2025, EVs are now taxed — though at a lower rate than most petrol and diesel vehicles.

New EVs in 2025/26: £10 in the first year (if under £40,000), then the standard rate (~£195 per year)
EVs registered before April 2025 now pay the standard rate (~£195 per year)
EVs over £40,000 may be subject to the Expensive Car Supplement — an extra charge applied for the first 5 years

This is a notable shift for anyone financing an electric vehicle — particularly those financing a premium EV like a Tesla Model 3 or BMW i4, which often tip over the £40,000 threshold.

The Expensive Car Supplement — What Finance Buyers Must Watch Out For

Vehicles with a list price over £40,000 attract an additional annual charge on top of the standard VED rate. In 2025/26, this supplement is around £610 per year and applies for the first 5 years after registration.

This applies to all fuel types — including electric. So if you're financing a Range Rover, a Mercedes EQS, or even a high-spec Tesla, you'll want to factor this into your running costs.

📋 For a £60,000 EV on a 4-year finance deal, that could add over £2,400 in road tax alone across the agreement term — money many buyers don't account for.

What About Petrol and Diesel Vehicles?

First-year VED rates for new petrol and diesel cars are calculated based on CO2 emissions. Higher-emission vehicles pay more — sometimes significantly more — in year one.

From year two onwards, most petrol and diesel cars pay the standard rate of around £195 per year.

Used car buyers pay based on the original registration category, so it's worth checking the exact VED rate before you buy — especially on older, higher-emission vehicles.

How Does VED Interact With Car Finance?

VED is your responsibility as the registered keeper — it's not something your finance company handles on your behalf.

However, it's worth knowing that if you're on a personal contract hire (PCH) or operating lease, VED is often included in the monthly rental. Always check the small print.

For hire purchase (HP) or PCP buyers, VED is always a separate cost. Make sure you've included it in your annual budget before signing.

Tips for Finance Buyers in 2026

✅ Always check the list price of a new car — if it's over £40,000, factor in the supplement
✅ For EVs, don't assume road tax is free — it no longer is
✅ Compare total cost of ownership, not just the monthly payment
✅ Ask your dealer or finance broker to give you the full-year running cost estimate before you sign

We Finance Your Asset — Transparent Advice for UK Drivers

At We Finance Your Asset (WFYA), based in Reading, Berkshire, we believe in giving our clients a complete picture of what a finance deal will cost — not just the headline monthly payment.

That means walking you through VED, insurance costs, servicing, and anything else that affects your budget. We work with buyers across the UK to find finance packages that genuinely work for them.

👉 Thinking about financing your next vehicle? Talk to us at WFYA and get straightforward advice with no surprises.