Nearly one million drivers are expected to be impacted by an "expensive vehicle supplement," informally known as an 'envy' tax, this year as the average price of a new car surpasses £40,000. This annual levy of £425 is applied for five consecutive years on cars costing more than £40,000.
The increase in average car prices means that vehicles previously considered standard, such as the Volkswagen Golf, Ford Kuga, and Skoda Kodiaq, now frequently exceed this threshold, drawing more families into paying the tax.
According to data from automotive analysis firm Jato, approximately 926,000 new cars costing over £40,000 were registered last year. Projections for 2026 suggest this number could rise to over 973,000 based on sales figures from the first half of the year.
The tax threshold for electric cars was raised to £50,000 in April to account for their higher costs. However, the threshold for petrol and diesel cars has remained unchanged since 2017, when the average car price was £26,000.
Representatives from the automotive industry have expressed concern. Ian Taylor of the Alliance of British Drivers stated that "ordinary families are being priced out" and that for most people, a car is an essential rather than a luxury item. Sue Robinson of the National Franchised Dealers Association noted that "everyday family cars are increasingly being classed as luxury vehicles rather than the exception the tax was designed to capture."
The 'envy' tax applies to hybrid cars as well and is calculated based on the manufacturer's list price, disregarding any dealer discounts that might bring the final purchase price below £40,000. The levy also extends to second-hand vehicles if they are still within the five-year payment period from their initial registration.
Data from the Society of Motor Manufacturers and Traders indicates that 70% of new cars now have a price tag of £40,000 or more. For example, the price of a VW Golf GTI has increased from £27,865 in 2017 to £44,175, while a Vauxhall Grandland Ultimate has risen from £33,995 to £40,745 in the same period. Similarly, the Ford Kuga ST Line now costs £40,485, compared to £25,845 in 2017.
In response to rising prices and the tax implications, some buyers are reportedly turning to more affordable brands, particularly Chinese manufacturers like Jaecoo, BYD, and Chery. Sales for Jaecoo vehicles, with an average price of £32,000, have seen a significant increase.
A Treasury spokesperson commented that revenue from motoring taxes supports public services and infrastructure. The spokesperson added that the expensive car supplement ensures "those buying the most expensive vehicles make a fair contribution," and highlighted the raised threshold for electric cars and the extension of the fuel duty cut as measures protecting motorists.