There has been much speculation from within the car industry about how the Chancellor’s shake-up of VED rates in this year’s Budget will affect sales of the cleanest and greenest cars, which manufacturers have put so many resources into developing. In essence, the new road tax ratings mean that buying clean and green is no longer necessarily the cheapest option for road tax, as it has been for a few years now.
Many people invested in low-emissions cars in order to take advantage of VED exemption, but from April 2017 this will only apply to zero-emissions cars – effectively only electric or hydrogen fuel cell vehicles. The new rules only affect cars bought from 1 April 2017, so those planning to invest in new cars should time their purchase carefully to take advantage of the most beneficial VED structure for them.
For the time being, existing low-emissions cars are unaffected by the changes, although there is certainly no guarantee that they won’t be penalised some time in the future.
While buyers of eco-friendly cars will have to pay more than they do under current VED ratings, the new system could benefit those buying cars below the £40,000 ‘luxury car’ threshold which aren’t considered particularly clean and green, such as cheaper sports cars and SUVs.
Looking for a low-emissions car? Buy before April 2017
If you are planning to buy something environmentally friendly, it may be wise to do so before 1 April 2017, when the changes take effect. You can find calculation tools online which will work out how much it will cost you in VED to buy and own a particular car before or after that date. You will need to know the official CO2 emissions number for that model and the list price.
The average car will cost more in VED after 1 April 2017 than it does now, particularly those with low emissions. If the car you want to buy has low emissions and costs more than £40,000, you will be much better off buying before April 2017, as so-called ‘luxury cars’ over £40,000 will be subject to a VED surcharge of £310 per year in the second to sixth years of registration.
For example, the new Mercedes-Benz GLE 500e hybrid SUV costs £64,995 to buy today, and reports CO2 emissions of just 84g/km. At the moment, it is exempt from VED altogether. After 1 April 2017, it would cost £100 in VED when new, £450/year for the next five years and £140 annually thereafter. So over a ten-year period, the Treasury will get an additional £2,910 compared to today.
It is highly likely that there will be a rush on new low-emissions vehicles ahead of the 31 March 2017 deadline, so if you are planning a purchase before that time, you would be wise to plan and purchase ahead of the rush to avoid missing out. In addition, there will be a flurry of activity from manufacturers to re-spec and re-price cars so that they can slide under the £40,000 threshold, so the equipment levels and prices may change after April 2017.
Buying a high-emissions car? VED will be cheaper after 2017
On the other hand, if you are planning to buy something costing less than £40,000 but with emissions higher than 225g/km, and you plan to hang on to it for three years or more, then the new VED rules will actually work in your favour. A case in point is the new Ford Mustang, available in the UK with right-hand drive for the first time and costing £33,995, with CO2 emissions of 299g/km. If you buy one now, you will pay £1,100 in VED when new and then £505/year after that. So over a decade, the Treasury would take £5,645 (based on today’s rates, although they increase most years). If you buy a new Mustang after 1 April 2017 – assuming the list price doesn’t pass £40,000 in that time – you will pay £2,000 in VED when it’s new and then £140 per year after that. After a decade, the government will have taken in £3,260 – which is £2,385 less than on today’s scheme.
Of course, the manufacturers will know this, and will be very concerned about sales drying up in the lead-up to the VED changes. Therefore, it is quite likely that there will be some offers about to entice you to buy sooner. Do your sums and work out whether it’s better to take a discount up front and pay more road tax each year, or pay more up front and then less VED every year.
In reality, these numbers are approximate as VED generally increases each year and will almost certainly increase after 2017, regardless of whether you are buying a new car or taxing an existing car. So whatever the Chancellor has announced for 2017 will almost certainly go up in 2018 and beyond.
It is very interesting that low-emissions vehicles are being penalised while the highest polluters are being rewarded, which is an unusual message for a government to send it public these days. It’s hardly encouraging us all to be environmentally responsible.
The key factors for any buyer to consider will be the purchase price (bearing in mind any discounts or offers available), the emissions and how long you plan to keep the car. If you plan on changing the car within a short period, the upfront price will be more important. If you are planning on keeping the car for several years or more, the ongoing VED charges will eventually mount up.