Drivers warned Rachel Reeves is set to introduce £410 charge for expensive cars

Chancellor Rachel Reeves is facing mounting pressure from the UK car sector to increase the threshold for the luxury car tax.

Millions of drivers face new costs as Rachel Reeves prepares to introduce a 'luxury' car tax charge. Labour Party Chancellor Rachel Reeves is facing mounting pressure from the UK car sector to increase the threshold for the luxury car tax.

Industry leaders have called for the Expensive Car Supplement threshold to be raised from its current level of £40,000. The Expensive Car Supplement, which is often referred to as the "luxury tax", was introduced in 2017.

It affects internal combustion engine vehicles costing more than £40,000. It is set to apply to electric vehicles from April 2025.

READ MORE UK tourists warned as Menorca, Majorca, Ibiza begin 'expelling' people

Harvey Perkins, tax expert and co-founder of HRUX, suggested the Chancellor may address the issue in her upcoming Spring Statement, saying: "There's a chance that there will be a change regarding the expensive supplement."

Paul Holland, managing director for UK/ANZ Fleet at Corpay, added: "At a time when businesses need cost-effective options to transition to electric vehicles, further price hikes could delay adoption."

The Expensive Car Supplement (ECS) is a tax levied on vehicles with a list price exceeding £40,000. This charge, introduced in 2017, adds an additional £410 per year to the standard Vehicle Excise Duty (VED) for five years following the first year of the vehicle’s registration.

The ECS does not apply to LCVs but does apply to all cars over this threshold, including petrol, diesel, and hybrids, with a reduced rate for hybrids.

For fleet managers and company car drivers, the ECS can make a significant difference in vehicle choices, particularly for electric vehicles, who up until 2025, have been exempt from this tax.

These up-and-coming changes are likely to involve some shifts in choice lists and vehicle selection processes for many businesses as they will increase the cost of maintaining some higher-end electric models. This will undoubtedly trigger a reassessment of many fleet strategies, where current or planned vehicles exceed the £40,000 threshold.