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Car tax 2017: how much will you be paying?

New car tax rules coming into effect on 1 April 2017 mark a big change to the old system. Is it still best to buy a hybrid or electric car if you want a low car tax bill?

New car tax rules from the government are coming into effect on 1 April, bringing sweeping new car tax changes that will affect anyone buying a new car.

Owners of new, low-emission cars will no longer be exempt from paying car tax. Yet those who buy the most-polluting vehicles could pay thousands less.

Currently, if a car has low or no carbon dioxide (CO2) emissions, it is exempt from car tax. And the more CO2 your car emits, the more car tax (or vehicle excise duty) you pay.

But new rates will apply for all new cars registered on or after 1 April 2017.

Our independent tests reveal the cars you’ll pay the least tax on, for now. See most fuel-efficient cars

How is car tax changing?

In the first year, not much is changing. So if you buy or register your car on or after 1 April 2017, your first year’s car tax will still be based on emissions, much like it is now.

That means if you’re buying a low or zero-emissions car, you won’t pay any tax for the first year.

But from year two onwards, only zero-emission electric vehicles will be exempt from car tax. For everyone else:

  • If you drive a conventional petrol or diesel car, you’ll be charged £140 a year.
  • For alternative-fuel cars, such as hybrids, you’ll pay £130.

Put simply, drivers of cleaner cars will now pay significantly more than they used to, while drivers of some of the most-polluting cars on the road will pay less.

Don’t want to pay car tax? Make sure you choose one of the best electric cars.

What about cars over £40,000?

But the changes don’t stop there. If your new car costs £40,000 or more, even if it’s zero-emission, you’ll need to pay an extra £310 a year between years two and six. This brings the total tax to £440 a year for hybrid cars, £450 for petrol and diesel cars, and £310 for electric cars.

So if you’re eyeing up a luxury low-emission hybrid that costs more than £40,000, such as the Lexus RX or Mitsubishi Outlander PHEV, be prepared to pay more car tax.

It may be expensive, but at least it’s straightforward, right? Well, there are caveats to keep in mind:

  • Don’t just go by the price listed in the brochure. If VAT, delivery charges, pre-delivery inspection charges and any options you add to the car push the price over the £40,000 threshold, you’ll have to pay the extra £310.
  • The government offers a grant for anyone buying a plug-in hybrid or electric car – you can’t get out of it that easily, though. The grant can reduce the cost of the car by up to £4,500, but the car tax you pay will be based on the price of the car before the grant.
  • One cost that isn’t counted is the £55 first-registration fee, as well as dealer-fit options, such as small accessories and possibly wheels.

Is the new car tax system fair?

The Treasury certainly thinks so. A spokesperson told us: ‘The new system maintains substantial incentives for people to choose the cleanest vehicles.’

However, if you have a dirty car, while you can expect a high tax bill in the first year, the significant drop in tax from year two onwards means you’ll start making money back compared with the old system.

And it’s owners of lower-emission cars that are the biggest losers. A Toyota Prius, for example, will now cost £1,185 over 10 years – as opposed to £0 under the old tax rules.

Lower-emissions cars have become popular among motorists: 1.4m cars were exempt from car tax in 2015, compared with just 21,000 in 2009. We’ll have to wait and see whether the new rules will have an effect on future sales.

For more information on how the new car tax rules affect you, visit our full car tax guide.

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