Motability: VAT
The question
To ask the Chancellor of the Exchequer, if she will make it her policy to leave Motability VAT at nil / exempt for those accessing the scheme through the Armed Forces Independent Payment.
Answered by Dan Tomlinson
At Budget 2025 the government announced tax changes to the Motability scheme which will save over £1 billion over the next five years.
The VAT relief for top-up payments made to lease more expensive vehicles will be removed for new leases from July 2026, and Insurance Premium Tax will apply at the standard rate to insurance contracts on the Scheme. The VAT reliefs on weekly lease costs and vehicle resale will remain in place, and the tax changes will not apply to vehicles designed, or substantially and permanently adapted, for wheelchair or stretcher users.
The tax framework for Motability, and other qualifying schemes, treats all eligible welfare benefits equally, and the Government has no plans to change this. Recent tax changes were designed to ensure Motability can continue to deliver affordability for its customers, for example through the continued provision of a broad range of vehicle models available without any top-up payments.
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