From April 2025, electric vehicles (EVs) priced over ￡40,000 will be subject to the UK’s Expensive Car Supplement (ECS), a tax previously reserved for petrol and diesel models.

This change, announced by the UK Government, means that electric cars in this price bracket will face an additional ￡410 in Vehicle Excise Duty (VED) annually for the first five years of ownership.

While the ECS, often referred to as the luxury car tax, has been in place since 2017, it has had minimal impact on car purchases. According to Auto Trader data, the price of new cars has risen substantially in recent years, with the average cost of a new vehicle reaching ￡50,175 in June 2024 — up from ￡35,226 in June 2021 — bringing more vehicles into the ECS range.

However, with electric vehicles now under the ECS, the financial landscape for EV buyers is changing. The average price of a new electric car in the UK currently sits at ￡48,000, meaning many electric vehicle owners will face this additional charge. Auto Trader warns this could deter some buyers from switching to EVs, especially as the ECS adds to the already higher upfront costs of electric cars.

Despite this, Auto Trader highlights leasing as a viable way to offset the financial impact of the ECS. If a driver leases a car — whether through Personal Contract Hire (PCH) or Business Contract Hire (BCH) — the ECS and VED charges are bundled into monthly payments. This makes the cost more manageable by spreading the tax over the lease period, rather than requiring large one-off payments.

Erin Baker, Editorial Director at Auto Trader, explains: “While the ECS hasn’t significantly affected petrol or diesel car sales, the landscape may change for electric vehicles. With two-thirds of EVs costing more than ￡40,000, the additional road tax could make them less appealing. However, leasing offers a practical solution. The ECS is automatically incorporated into the monthly payments, making it simpler for drivers to manage the added costs.”

For those opting to lease, the first year offers some relief. The standard VED charge for electric cars will be ￡190, but a discounted rate of ￡10 applies in the first year. Both the ECS and VED charges will be evenly distributed across the lease term, ensuring no unexpected financial shocks for lessees.

As Baker points out: “Leasing provides flexibility and financial ease. By including both the ECS and VED in the monthly payments, drivers can avoid the hassle of arranging road tax or facing large lump-sum payments. And while the first-year VED for new electric vehicles is reduced, leasing can still offer a more economical route compared to owning outright.”