VAT Rise on Cars: How It Will Affect New and Used Cars

Starting 4 January last year, the value-added tax (VAT) on cars increased. This rise impacts both new and used cars, making purchases more expensive. If you are planning to buy a car, it’s important to understand how the VAT rise on cars affects your budget and overall costs.

VAT Applies to All Dealer Purchases

The VAT increase affects all cars bought through dealers. Whether you purchase a new car or a used car from a dealer, the higher VAT applies. Private sales usually do not include VAT because most private sellers are not registered to charge it. This distinction can help buyers save money if they consider purchasing from private sellers.

How Luxury Cars Are Impacted

Luxury vehicles, such as the Range Rover SUV, and less fuel-efficient cars experience bigger price increases. These cars cost more initially, so the VAT rise adds a significant amount to the total price. Fuel-efficient and family-friendly cars also face VAT increases, but the amount is generally lower, around £400 for these models.

Who Can Be Exempt from the VAT Rise

Some buyers may qualify for VAT exemptions. Disabled individuals who use a car solely for personal use may avoid paying the VAT increase. Not everyone qualifies, so contacting HMRC to confirm eligibility is essential. This ensures you receive any relief you are entitled to before making a purchase.

Ways to Reduce VAT Costs

Buying used cars privately is one way to avoid the VAT increase, as private sellers often do not charge VAT. However, if you buy through a dealer, you must pay the VAT unless you qualify for an exemption. Always check your status with HMRC before purchasing to avoid unexpected costs.

Planning Your Car Purchase

To minimize VAT expenses, plan your purchase carefully. Compare dealer prices with private seller options. Consider whether a fuel-efficient car might save more money over time, even if the initial VAT increase is smaller. Some buyers might also delay their purchase if waiting could result in better deals or incentives.

Practical Tips for Car Buyers

1. Research All Options: Check both dealers and private sellers to compare total costs, including VAT.

2. Check for Exemptions: If you might qualify for VAT relief, contact HMRC first.

3. Consider Fuel Efficiency: Cars with better mileage can save more money on running costs.

4. Budget for VAT: Factor in the VAT rise when calculating your total budget.