Should the 'luxury car tax' threshold be raised?

[HangTime]

I was thinking, the 'luxury car tax' i.e. additional VED that is paying for vehicles costing over £40k has been place over 5 years now. Inflation is running at 10% and new car prices are getting hiked a lot over the past year or so.
The impact of this is that more and more cars are getting dragged into this bracket, especially at higher trim levels.

Should this threshold be raised in a similar was to how income tax thresholds often rise?

You might be thinking "lol, anyone paying £40k for a motor is loaded innit, they can afford the tax bro" but keep in mind the surcharge remains for 5 years. So say you never spend £40k on a car, but you might buy a used car that is a couple of years old for less that had an original list price of £40k. And you've then got a tax surcharge of over £350/year to deal with on top of the elevated used car prices.

I don't actually have a strong opinion either way, we need to collect taxes somehow but it's just another factor that makes window shopping for cars these days even more unpalatable, there's nothing that looks like a good deal any more.

 

[HangTime]

I never understood why it was introduced in the first place. It penalises people for buying and expensive car, not a polluting one. I would have thought that value of vehicle has nothing to do with what the gov were wanting to achieve, which I assume, is to reduce pollution. The sooner we get rid of the 200+ CO2 vehicles the better IMHO but penalising people for buying a car that costs more than 40k seems ridiculous.

And yes,the extra years of £475 a year road tax does sting because it seems so unfair.

The thing is they needed to maintain the tax take somehow against a backdrop of more efficient engines and hence less cars in the £LOL VED brackets based on emissions.
The actual premise I don't have a big issue with it's more the implementation whereby there is no stepped increment, it's just BAM £40k as a magic threshold, a bit like the old stamp duty system where you could buy a house for £250k and pay no stamp duty, but if you paid £250,001 you had to pay £7.5k or whatever it was in stamp duty. Or in this case you have a situation where adding a floor mat could cost you £1500 or whatever (obviously you wouldn't do that, but you get my drift). It may also impact resale values a little because when shopping for used cars I'd be trying to avoid cars just over the £40k list threshold.

That kind of brings me to another point actually, that it makes searching for used cards more painful because you can't easily search based on original list price. So like you can say OK, make X, model Y, trim level Z... maybe some of those are <£40k list and some are >£40k list dependent on age, what options were added, what paint etc etc. So a car might be priced at £500 less than a very similar one but actually cost you more than £500 extra in tax.

Who buys a £40k+ car and can't afford to pay the additional costs for it? There's plenty of used cars below that which have all of the "needs".

Edit: just saw it includes used cars with a "new value" of £40k... I don't agree with that.

New? Yes.
Used < 5 years ago? No...

This is kind of my point from the OP, the answer to "Who buys a £40k+ car?" is a bit different than it was 5 years ago because more and more cars are hitting £40k list price. Every car we've bought has cost under £15k (with a list of price of under £25k) but looking at options for the next car a lot of them are touching that £40k barrier and I'm not looking to push the boat out on some sort of ultra luxury (what I really want would probably cost £60k+). I'm the sort of person that would really begrudge paying the surcharge regardless of whether I can afford it or not. I don't want a 320d but like people say maybe that's a good example, add any options to the base spec and you're looking at 40 grand.

 

[HangTime]

Well I'm absolutely in this group. I can pay £40k today for a new car if I want to do, I have the cash readily available. But I don't want to pay this extra >£350 year in tax compared to a £39k car. If a £40k car was taxed at say 2.5% more than a £39k car then yeah, I wouldn't sweat it.
And yeah, there are cheaper options that cover the 'needs', that's the market I've always operated in, but there are way less options than there used to be. The situation is, I want a good family car that has a big boot, a not terrible engine, good comfort, good safety, and an upgrade on current car, I'm prepared to pay 50% more than the list price of any car we've ever owned, basically anything up to £40k list price, and I'm coming up short, it ends up being I could pay >£20k tradeup to get something that's barely an improvement on what we have already, to get a proper upgrade it's £30k which would kind of be OK if it wasn't for this extra chunk of tax whacked on top, it gets to the point where you think we may as well just stick with what we have.

It's a really common issue that people think if people can afford to buy something 'expensive' that they don't care about value or other drains on their cash. Maybe the reason they can buy a £40k car in the first place is because they are cautious or at least 'sensible' with their cash.

Car Tax Check | Check Car Details

Car Tax Check. Check vehicle tax by entering your vehicle registration number. We provide vehicle make, model and year, road tax status, and road tax costs.

www.checkcardetails.co.uk

No idea how precise it is but it does show the additional tax if I check a known more than £40k vehicle.

Yeah I considered this sort of site when writing my post but the issue is that doesn't actually help the original search much, you have to manually check each and every car you come across, you can't filter them out of your search to begin with.

 

[HangTime]

What's even more strange it is electric vehicles used not to be exempt. They actually explicitly changed the rules to exclude them.

A couple of years back it was a big issue with Tesla marketing the Model 3 at under £40k but the had a delivery charge (that counted for tax purposes) pushing it over the threshold!

 

[HangTime]

40k is a lot of Money for a car.
I can't ever see myself having 40k to spend on a car. Not even half that.

As has been said earlier in the thread, it's not just about paying £40k for a car, it's also about buying cars for less than £40k that were £40k when new. In a normal market a car might depreciate 50% within 3 years so the tax bill would also hit people paying less than half of £40k in the later years.

 

[HangTime]

The difference is there was no price threshold for those emission based taxes, and if anything over time typical emissions from used vehicles were being reduced not increased, so it was getting easier and easier to pay less in tax (one of the reasons they changed the system no doubt). Whereas this luxury car tax is getting more and more commonplace as manufacturers hike their prices.

Additionally, you are talking about old cars with a high tax rate, the 2017 £40k cars I have less issue having a luxury car tax because £40k got you a lot more car in 2017 than it does today.
Take the Korean stuff like Hyundai Santa Fe and Kia Sorento, even the absolute base spec of these models is over £40k now. Same for Ford Galaxy.
Wind the clock back to 2017 and you were packing Audi Q5, Mercedes C Class Estate etc.

 

[HangTime]

Is there nothing originally under 40k that can tow a caravan?

There is, however the premise of this thread was that new car prices were going up a lot (and have risen a lot more since I posted this in 2022) so fewer and fewer decent cars with good pulling power will come in under £40k. The Korean stuff I mentioned before, even the most basic 3 series (non-estate, poverty spec, weakest engine) is over £40k list now.

You will always be able to buy a car to do a job, but the list of choices is diminishing all the time and/or you have to be super careful about trim levels / options. As bonkers as it sounds some little £60 option could end up costing you thousands in tax.

Looking at carwows top 10 best used cars for towing as a random example, the only two on the list that cost under £40k new now are the Dacia Duster and Skoda Octavia. More and more cars are getting dragged into the 'luxury' bracket.