How the new car tax rules will affect you

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Car tax is going to be completely overhauled following this week’s Summer Budget. It’ll change how much some drivers pay and the way in which the government spends the money. Here’s how the changes could affect you.

New-car owners could pay more

Vehicle Excise Duty (to give car tax its proper name) is paid by all motorists except those who drive zero-emission vehicles. The amount you pay in car tax depends specifically on what you drive - the lower its emissions, the less you pay. But changes announced by the Chancellor this week mean that some drivers who might have otherwise dodged car tax will eventually have to pay it. From April 1, 2017 and for new cars only, the number of car tax bands will be reduced from 13 to just three. All new cars from this date will be liable for either zero, standard or premium Vehicle Excise Duty. The standard car tax band will cost £140 a year and cover 95% of all new cars, according to George Osborne. None of these changes affect existing cars. So, whether you pay £0 or £160 a year in car tax now, that’s exactly what you’ll continue to pay if you keep the same vehicle. But if you buy a new car after April 1, 2017, you’ll be affected by the new rules.

Low emission cars, higher tax

The other big change is on car tax discounts for low emissions vehicles. At the moment, cars which emit up to and including 100g of CO2 per kilometre are exempt from car tax – but that will change from April 2017, too. Drivers of zero emissions cars like the Nissan Leaf, for example, will continue to pay no car tax at all. All other cars will be subject to a first year rate and then the standard £140 rate after that. The greater the car’s emissions, the more expensive the first year rate will be. Here’s a handy table illustrate how it will work:

It means cars that previously qualified for car tax discounts for emitting less than 100g/km of CO2 will, after the first year, pay more. Also, new cars with a list price of £40,000 or higher will pay an extra £310 per year, on top of the standard rate, for five years.

The Chancellor’s reasoning being that if you can afford a nice car that costs more than £40,000, you can afford the tax.

The roads ahead

From 2020-2021, the money raised from Vehicle Excise Duty on new cars in England will be paid into a new Roads Fund, which means the car tax drivers in England pay will be directly spent on the roads and infrastructure.

CO2 emissions (g/km)

First year rate (£)

Standard rate (£)

0 0 0
1-50 10 140
51-75 25 140
76-90 100 140
91-100 120 140
101-110 140 140
111-130 160 140
131-150 200 140
151-170 500 140
171-190 800 140
191-225 1200 140
226-255 1700 140
Over 255 2000 140

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