RAC Cars News


How new road tax rules will affect car buyers

By raccars Published

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If you're planning to buy a new car this year, how much will it cost you in road tax?

Before you commit to buying a new car, you should always consider the running costs; fuel economy, insurance and of course road tax. In 2017 the current regulations determining how VED or road tax is calculated are due to change, and car buyers need to be aware of the new status quo to avoid seeing their wallets squeezed dry. The new VED regulations take effect from 1st April 2017 and a little advanced research could determine whether you would save money by registering your new car before or after this date.

Current road tax system too expensive for chancellor

The Government has been forced to update the rules because they haven't kept pace with changes in the industry. Generous VED rates were introduced to encourage buyers to choose lower emissions cars, but since then manufacturers have made great strides in emissions reduction and fuel economy, meaning that more and more car owners are qualifying for the lowest rates of VED, and the Government simply cannot afford the loss in revenue from higher band VED rates.

Currently about a quarter of all new cars sold fall into the VED exempt Band A, which applies to vehicles producing less than 100g/km in CO2 emissions. In fact VED remains free of charge or very cheap until you buy a car falling into Band D, which is for cars producing 121-130g/km in CO2.

Road tax from 1 April 2017

From 1 April 2017, new car buyers will be subject to an updated version of the current band system, still calculated according to CO2 emissions, with a one off VED charge for the first year of ownership. The changes essentially mean that the initial first year VED payment will be doubled for most car buyers, while zero emissions vehicles will still be VED exempt.

After the first year two flat rates of VED will apply, regardless as to the CO2 scale. Zero emissions cars will remain exempt and all other vehicles will pay £140 per year. A special rule will apply for cars with a list price of £40,000 or more, and owners of these will have to pay a £310 supplement for the first five years, whether they are zero emissions or not.

So, the owners of emissions-free cars above £40,000 will have to pay £310 per year for five years, and all other cars costing from £40,000 will pay £450 per year - £140 plus £310 - for five years and then £140 after that.

When should you buy?

As the new rules are designed to extract money from low emissions car owners, who are currently paying very little, these are the people who stand to lose out from 1 April 2017. Under the current system, a car producing 100g/km in CO2 is exempt from VED. However once the new rules apply, buyers of the same car will pay £400 in the first three years and £1,380 over a decade. If at all possible, you should therefore buy these vehicle types before 1 April 2017.

However if the car you're looking at is a little sportier or an SUV which produces 226g/km in CO2 or more, and you plan to keep it for a few years, you will benefit from the new rules and save some £600 in five years and £2,500 in a decade - worth waiting until after 1 April next year.

If you are looking at something costing £40,000 or more, it's fairly clear that you need to buy before the new rules take effect, in order to save money. Only those £40,000 plus cars with emissions above 226g/km and which you intend to keep for ten years or more will be cheaper if bought after 1 April 2017.

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