30.05.17

the new VED and how it will affect your next car purchase

April saw significant changes to VED (Vehicle Excise Duty), which has substantial implications for new car buyers and owners. Changes to vehicle tax bands mean some new cars are considerably more expensive to tax while others have become cheaper.

So, what's the impact, what should you look out for, and where are the good deals found?


The bad news first

Up until now, the average new car buyer has been paying relatively small sums in road tax, and in many cases, the first year has been free. Many vehicles were tax exempt and many more were as little as £20 a year. The new system means those days are gone, with all vehicles producing any amount of emissions having to pay some form of tax from purchase.

All told, VED has increased more or less across the board. The biggest losers are mass-market buyers who will see significant increases proportionally, with some vehicles seeing as much as a ninefold increase. More expensive and higher polluting cars will also see an increase, but as a percentage, the impact is less dramatic.

In addition to increased rates, the new rules introduce a five-year supplement to pay for cars costing more than £40,000. If your car exceeds this sum, you will have to pay an additional £310 per year, which starts in the second year of registration.

So let's use an example. Say, for example, you buy a modest vehicle with a 1.0-litre engine emitting 99g/km CO2. On the old system, you would pay no road tax whatsoever. In the new system, you’ll pay £120 in year one and then £140 from year two. Three years on and you’re £400 out of pocket.

 VED exempt cars

 There are two groups of vehicles that are still VED exempt in the new system: electric and hydrogen cars. Unfortunately, though they are exempt from the new rates, they are not exempt from the surcharge if their list price exceeds £39,999. This means an additional cost of £1,240 over four years for any high value electric car.

 Is there any good news?

 Well… not really, no.

The reason originally behind VED was to encourage manufacturers to produce more clean and economical vehicles. The new tax seems more focused on generating revenue for the government. From a financial perspective, though there are a few cars that win out in the new system, the vast majority of vehicles do not. Top-end vehicles see big increases, and for the most part, the middle band sees increases also.

However, there are a few vehicles that sit in the sweet spot just below the £40,000 supplement with economical engines that are actually better value under the new rules.

 How will the new VED rules affect the industry?

 Overall, the increase in cost of ownership will, inevitably, result in consumers spending less on their initial purchase. This will likely only deliver a modest impact to profitability with consumers still purchasing, just at a slightly reduced price point. Where the damage will really come is around vehicles sitting at and above the £40,000 mark. Many of these vehicles see a significant tax increase which will likely see consumers try to avoid this price point by avoiding extras or going for cheaper vehicles.

Several manufacturers have already started discounting vehicles over the £40,000 mark to tempt customers to purchase. Tesla, which has for the first time been hit with VED, is offering servicing to the value of the tax on all new purchases. Even with manufacturers offering support, April was a weak month for sales volumes with the used market seeing an increase in interest.

Our ‘good’ value cars under the new VED

 So, after a resoundingly negative round-up, are there any winners? Happily, there are a few. We don't have time to list them all, so instead, here are the two that for me stood out from the pack.

M240i.jpg

BMW M240i Convertible

Yes, you read that right. Believe it or not, the new VED works in the favour of this straight six wielding muscle car. With 189g/km CO2 emissions and a purchase price just south of £40,000, you stand to save a modest sum over four years. Previously, you would have paid £1,310 over four years, now £1,120, saving you £190.

Ford Mustang 5.0 V8 GT Fastback

I know, it makes no sense, but just go with it. A 5-litre V8 has rarely, if ever, been associated with the word ‘value’, but here we are. In spite of CO2 emissions of 299g/km, over four years, the Mustang is £245 cheaper under the new rules than the old. It will still cost you £2,420 over that period, and that's before you get acquainted with every petrol station en route to the office, but it’s a V8!

 

Auto Express Article http://www.autoexpress.co.uk/car-news/consumer-news/88361/tax-disc-changes-everything-you-need-to-know-about-uk-road-tax

Article by Dan Pitt


Associate Director and all round Petrolhead

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