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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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Car tax is getting confusing. New car tax rules came into force as of 1 April 2017, and additional new rules around diesel cars will take effect from  April 2018.

So depending on the date your car was first registered, you might be subject to one of three different car tax (VED) systems.

Here we lay out everything you need to know about the different rates and rules, and what you'll be paying.

Important: first registration date

What rate of car tax you'll pay is based on the date the car was first registered - this is not always the same date you bought the car, if you bought it used.

First registration dateThe date the vehicle was registered to its first keeper in the UK. The first registration date does not alter with subsequent owners. For instance: a car bought brand new and registered on 1 July 2016, and then sold to someone else on 1 August 2017, will always have a first registration date of 1 July 2016.

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New 2017 and 2018 car tax rules in a nutshell

For all cars that were bought new on or after 1 April 2017:

  • The 'first year rate' is based on CO2 emissions.
  • First year rate for diesel cars from 1 April 2018 will be charged a higher rate unless they meet the latest RDE emission standards
  • The '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 are not being backdated to older cars, they will continue along the previous tax system.

Below we explain the 2017 and 2018 rules in more detail, or you can skip straight to the table of car tax rates.

Car tax rates for new cars after 1 April 2017

For cars first registered on or after 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.

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

  1. The first year rate is based on the amount of CO2 (carbon dioxide) your car produces.
  2. After that, a standard rate applies. Petrol and diesel car owners will pay £140.

Car tax rates for diesel cars after 1 April 2018

Additionally, from 1 April 2018, anybody who buys a new diesel car that doesn’t comply with RDE Act 2 (RDE2) emission testing will pay a higher amount of car tax in the first year of ownership.

New RDE tests came into force in September 2017, but not all new cars have to comply with these new testing procedures until 1 September 2019. Find out more about official tests and how our tests compare by going to how we test mpg and emissions.

The rules are not being back dated; it only affects those buying a new diesel car that was first registered on or after 1 April 2018.

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 cars pay £10 less than petrol and diesel owners in the first year. They then pay £130 every year after.

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Here is a table with all the post-2017 rates:

Car tax rates from April 2017 and April 2018
Car tax rates for petrol and diesel cars
CO2 emissions First-year rate First-year rate from 1 April 2018 for diesel cars* Standard rate - from second year onwards
0 £0 £10 £140
1-50 g/km £10 £25 £140
51-75 g/km £25 £100 £140
76-90 g/km £100 £120 £140
91-100 g/km £120 £140 £140
101-110 g/km £140 £160 £140
111-130 g/km £160 £200 £140
131-150 g/km £200 £500 £140
151-170 g/km £500 £800 £140
171-190 g/km £800 £1,200 £140
191-225 g/km £1,200 £1,700 £140
226-255 g/km £1,700 £2,000 £140
Over 255 g/km £2,000 £2,000 £140
*For diesel cars that do not yet comply with RDE Act 2 (RDE2) emission testing.
Alternative fuel car tax rates from April 2017
Car tax rates for alternative fuel cars (hybrids, LPG, CNG, biofuel)
CO2 emissions First-year rate Standard rate - from second year onwards
0 £0 £130
1-50 g/km £0 £130
51-75 g/km £15 £130
76-90 g/km £90 £130
91-100 g/km £110 £130
101-110 g/km £130 £130
111-130 g/km £150 £130
131-150 g/km £190 £130
151-170 g/km £400 £130
171-190 g/km £700 £130
191-225 g/km £1,190 £130
226-255 g/km £1,690 £130
Over 255 g/km £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 X (an electric car that costs from £75,000), 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. These 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 - 2018 update

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.

The exception is diesel cars. From 6 April 2018, those buying a new diesel car that do not meet Real Driving Emissions Step 2 standards will see a rise in the existing Company Car Tax diesel supplement - from 3% to 4%.

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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