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New changes to Vehicle Excise Duty are due to come into place in April 2017. The changes could see many drivers paying hundreds or even thousands more over the course of several years.

 

CO2 emissions

The changes were announced by George Osbourne in 2015 in a bid to tackle CO2 emissions. The current rules state that cars emitting 101-120g/km are not to be taxed. This rule applies to about 75% of new cars.

However, the new rules mean that simply having low emissions isn’t good enough. From April onwards, only vehicles producing no emissions will be exempt. Therefore only electric and hydrogen cars will not be subject to the new tax rules. For everyone else the tax will be a flat rate of £140.

Emissions and charges

For the first year that a car is on the road, there will be a one-off charge. These charges will depend on how polluting the vehicles are. In order to determine the charges, vehicles have been split into 13 bands ranging from zero emissions to those over 255g/km.

So while the tax in the first year will likely be larger than you’re used to, this will go down to the flat rate.

When you buy your car is crucial

If you buy a low emissions car before April 1, you won’t have to pay any road tax. Buy the same car after that and you’ll be charged a one-off rate in your first year and then £140 each year after. If you can buy your car sooner, you could be saving hundreds over the next few years.

However, if you’re going to buy a more polluting car that you plan to have for a while, you might want to wait until the new tax system is in place. While you’ll end up paying more in the first year, this will go down to a rate lower than you would be paying if you bought your car before April.

Additional rates

If you’re planning on buying a luxury car, then get ready to fork out for the additional rates after April. An additional rate will be added for new vehicles over a list price of £40,000.

The additional rate of £310 will be payable for 5 years from the end of the first vehicle license, plus the standard rate of £140. After 5 years, only the standard rate will apply.

Zero emissions cars will be exempt from all car tax unless their list price is over £40,000 which will mean they will be subjected to the same additional rate of £310 for 5 years.

For those buying after April, don’t count on your negotiation skills to avoid the additional rate tax. Even if you can talk down the price of the car, you still won’t be able to avoid the tax because it goes off the list price.

What if you sell your car?

Any remaining road tax won’t be transferred to the new owner of the vehicle. The seller can get a road tax refund and the buyer will have to pay to re-tax the car.

However, people who want to buy a second hand car will be hesitant to buy one that’s just a few months newer because of the extra cost they might have to pick up if the car’s taxed under the new system.

A slightly older car with low emissions will be tax free as long as it was first on the road before April. A newer car, bought after April will incur the tax of £140 a year. This will mean that if you’re planning to sell a car subject to the new tax rules, you might have to sell it for less than it’s worth or struggle to sell it at all.

How will this affect businesses?

Businesses who rely on using multiple vehicles or just business owners who need to travel will be affected by these changes.

Businesses will most likely have to add this new expense to other rising business costs. Businesses who will struggle to pay the added tax might have to make up the difference, either by scaling down their operations or passing that expense on to their own customers.

Positives?

Overall, some vehicle owners will be better off but not at first. Drivers may be better off under the new system but only after about four years.

If you’re driving a more polluting car, you’ll have to pay a higher tax in the first year but then this will go down in subsequent years.

George Osbourne assured people back in 2015 that any money raised by the new car tax charges would go straight towards a road repair fund, rather than going to the Treasury. This will be the first time that car tax will be used to pay for the roads since the 1930s.

 

For more information about how this tax will affect you, you can visit the government’s website here.

 

What do you think of the new car tax rules? Are you planning to buy before April 1? Let us know your thoughts in the comments.

 

About The Author

Kara Copple

An experienced business and finance writer, sometimes moonlighting as a fiction writer and blogger.

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