An annual tax, dubbed the 'envy tax' by critics, is impacting nearly a million drivers in the UK as the average price of a new car has surpassed £40,000. The 'expensive vehicle supplement' imposes a £425 annual charge for five consecutive years on vehicles costing more than this threshold.

This levy, originally intended for luxury vehicles, is now ensnaring common family cars like the Volkswagen Golf, Ford Kuga, and Skoda Kodiaq, which now often exceed the £40,000 mark. Data from automotive analysis firm Jato indicates that approximately 926,000 new cars costing over £40,000 were registered last year. Projections suggest this figure could rise to nearly 973,000 by the end of 2026.

The tax applies to the manufacturer's list price, disregarding any dealer discounts that might bring the final purchase price below £40,000. It also applies to hybrid vehicles and can affect second-hand cars if they are within the initial five-year registration period. For instance, a second-hand Tesla saloon purchased in 2024 for £48,000, significantly less than its original price, still incurred the tax.

Automotive industry groups argue that the frozen threshold for petrol and diesel cars, unchanged since 2017 when the average car cost £26,000, is a primary factor. In contrast, the threshold for electric cars was raised to £50,000 in April to account for their higher initial costs. Figures show that the price of a Volkswagen Golf GTI has risen from £27,865 in 2017 to £44,175 today, and a Vauxhall Grandland Ultimate increased from £33,995 to £40,745 over the same period. Similarly, a Ford Kuga ST Line now costs £40,485, up from £25,845 in 2017.

According to the Society of Motor Manufacturers and Traders, 70% of new cars now exceed the £40,000 price point. This trend is reportedly leading some buyers to consider more affordable Chinese brands, such as Jaecoo, BYD, and Chery, with Jaecoo vehicle sales increasing substantially over the past year.

Representatives from the Alliance of British Drivers and the National Franchised Dealers Association have called for a review of the tax, stating that it unfairly burdens ordinary families and misclassifies essential vehicles as luxuries. A Treasury spokesperson defended the tax, noting that revenue from motoring taxes supports public services and infrastructure. The spokesperson added that the 'expensive car supplement' ensures affluent vehicle purchasers contribute fairly and highlighted measures such as raising the electric car threshold and extending a fuel duty cut.