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Car tax explained

By Adrian Porter

Find out how much car tax you'll need to pay and which cars are exempt from car tax. Our guide to car tax tells you everything you need to know.

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New car tax rules come into force as of 1 April 2017. Low-emission cars will no longer be exempt from car tax, and cars that cost over £40,000 will have an additional £310 per year charge applied to them over five years.

The new rules apply only to cars that were first registered as new after 1 April 2017.

The update to the car tax rules means that owners of low-emission cars will now face a standard rate of either £130 to £140 per year, from the second year onwards. However, the biggest polluting cars on our roads could pay thousands less compared to the previous system.

Keep reading to find out all you need to know about the new car tax rules.

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New car tax rules in a nutshell

  • First year rate based on CO2 emissions.
  • Standard rate kicks in after the first year: £140 for petrol and diesel cars, £130 for hybrids and alternative fuel cars.
  • £40,000 rule - if your car cost over £40,000, you have to pay an extra £310, per year, for five years on top of the standard rate.
  • Only zero-emission cars (like electric vehicles) are exempt from car tax - but are still subject to the £40,000 rule.
  • New rules affect all cars registered as new from 1 April 2017 - it is not being backdated.

Car tax changes for new cars after 1 April 2017

There are two main rates for cars that were registered as new after 1 April 2017.

The first year rate is based on the amount of CO2 (carbon dioxide) your car produces.

After that, a standard rate applies. Petrol and diesel car owners will pay £140.

Hybrid owners pay (slightly) less car tax

The rates are slightly different for owners of 'alternative fuel' cars. These are vehicles that do not run purely on diesel or petrol and include:

  • Hybrids
  • Plug-in hybrids
  • Liquefied petroleum gas (LPG) cars
  • Compressed natural gas (CNG) cars
  • Biofuel cars (bioethanol or biodiesel)

Drivers of alternative fuel car pay £10 less than petrol and diesel owners in the first year. They then pay £130 every year after.

Wondering if you should buy an electric car? The worst we've seen are impractial and unreliable. Find out which electric cars handle as well as their petrol and diesel rivals - see the best electric cars.

Here is a table with all the rates:

Car tax rates from April 2017
Car tax rates explained
CO2 emissions Petrol/diesel first-year rate Petrol/diesel standard rate Alternative fuel first-year rate Alternative fuel standard rate
0 £0 £0 £0 £0
1-50 g/km £10 £140 £0 £130
51-75 g/km £25 £140 £15 £130
76-90 g/km £100 £140 £90 £130
91-100 g/km £120 £140 £110 £130
101-110 g/km £140 £140 £130 £130
111-130 g/km £160 £140 £150 £130
131-150 g/km £200 £140 £190 £130
151-170 g/km £500 £140 £490 £130
171-190 g/km £800 £140 £790 £130
191-225 g/km £1,200 £140 £1,190 £130
226-255 g/km £1,700 £140 £1,690 £130
Over 255 g/km £2,000 £140 £1,990 £130

£40,000 rule for car tax

After the first year, owners of cars that cost over £40,000 will also have to pay an additional annual supplement of £310 for five years. 

This £40,000 rule also applies to zero-emission cars that cost over £40,000. So if you bought a brand new Tesla Model S (an electric car that costs over £40,000), for instance, you will pay £310 per year during the second to sixth year of ownership. That’s £1,550 in total.

Here's a table showing the rates for cars that cost over £40,000:

£40,000 rule explained
Cars over £40,000: what you'll pay during years 2-6
Fuel type Standard annual rate Additional rate Total annual payment
Petrol/diesel £140 £310 £450
Alternative £130 £310 £440
Electric 0 £310 £310

Previous car tax rates: petrol and diesel cars

Any car first registered as new after 1 March 2001 but before 1 April 2017 will continue to be taxed at their respective rates, which are based on official CO2 emissions - with one caveat:

It was announced in the 2017 Spring budget that these rates will increase in line with the RPI (Retail Price Index) - from April 2017.

The amount of CO2 your car produces puts it into one of the following bands. These bands have a letter assigned to them, from A to M - cars in band A emit the least amount of CO2, and are currently exempt from paying any car tax throughout the life of the car.

The rates below show the price if you choose to make a single payment for the year.

You can choose to set up a direct debit to pay monthly, or pay a single payment every six months. But if you choose either of these options, you will end up paying more.

Pre-April 2017 car tax rates explained
Current car tax rates
Car tax band CO2 emissions First year rate Annual rate after first year
A Up to 100 g/km £0 £0
B 101-110 g/km £0 £20
C. 111-120 g/km £0 £30
D 121-130 g/km £0 £110
E 131-140 g/km £130 £130
F 141-150 g/km £145 £145
G 151-165 g/km £185 £185
H 166-175 g/km £300 £210
I 176-185 g/km £355 £230
J 186-200 g/km £500 £270
K 201-225 g/km £650 £295
L 226-255 g/km £885 £500
M. Over 255 g/km £1,120 £515

*Band K includes cars that have a CO2 figure over 225g/km but were registered before 23 March 2006.

These car tax rates apply to cars registered after 1 March 2001. Cars registered before this date are charged based on their engine size: those with engines smaller than 1549cc will pay £145 a year and others will pay £230 a year.

A rolling 40-year car tax exemption for classic vehicles applies from 1 April 2015. It means any vehicle built 40 or more years ago will be exempt from car tax on an automatic rolling basis on 1 April each year.

Not sure whether your next car should be diesel or petrol? Use our calculator to find out which will cost you less - petrol or diesel car.

Previous tax rates: alternative-fuel cars

Alternative-fuel cars are those that do not run purely on diesel or petrol. They can include:

  • Hybrids
  • Plug-in hybrids
  • Liquefied petroleum gas (LPG) cars
  • Compressed natural gas (CNG) cars
  • Biofuel cars (bioethanol or biodiesel)

The car tax rates for alternative-fuel cars simply cost £10 less than for regular petrol or diesel combustion cars.

Will I be better or worse off under the new system?

To show how the new rules will affect you, below are a selection of cars with CO2 levels ranging from low to high. All cars are for example purposes only and some have greener engines available. All models listed are under £40,000:

Would you be better or worse off under the new system?
Would you be better or worse off under the new system?
Car CO2 emissions Loss/gain after one year Loss/gain after five years Loss/gain after ten years
Toyota Prius (hybrid - alternative fuel rates apply) 70 g/km -£15 -£535 -£1,185
Ford Mondeo 94 g/km -£120 -£680 -£1,380
Skoda Superb estate 126 g/km -£160 -£280 -£430
Honda Civic Tourer 151 g/km -£315 -£135 +£90
Subaru WRX STI 242 g/km -£815 +625 +£2,425

£2,425The new rules will mean you will pay £2,425 less on environmentally unfriendly cars like the Subaru, yet pay £1,185 more on green cars like the Toyota Prius over a 10-year period.

No more tax discs

Since 1 October 2014 you are no longer required to display a tax disc in the windscreen of your car.

This did not, sadly, mean the end of annual car tax but it does have implications for buying and selling cars.

If you buy a used car: any remaining car tax can no longer be transferred so you need to tax the car before you can use it.  

If you sell a car: you will get an automatic refund for any remaining car tax – provided you have notified the DVLA of the sale.

However, you will only be refunded for any full calendar months remaining. That means if you sell your car one week into the month, both you and the new owner will effectively have to tax it for the remainder of that month.

Company cars and car tax

The company car tax rules were changed back in 2002, with tax rates based on a car's CO2 emissions. This means drivers of 'greener' cars pay less 'benefit in kind' (BIK) tax.

Essentially, a car’s CO2 emissions place it in a band, which gives the percentage BIK tax a driver will pay.

Unlike privately owned cars, new vehicles will not be subject to the same flat rate after April 2017. The BIK rates, which are based on CO2 emissions, have been set until 2019-20.

Now you're up-to-date with the new car tax rules, we'll help you to choose your next new car. Use our expert tests and research to compare car reviews.

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