Measure
VAT and IPT reliefs currently available for vehicles leased under the Motability ’qualifying schemes’ will be restricted.
The government will remove the zero rate such that ’top-up’ payments made in addition to the transfer of eligible benefits will be subject to the standard rate of VAT (20%). The transfer of eligible benefits to pay for the lease will be disregarded for VAT purposes.
The IPT exemption for insurance contracts on cars leased under the Motability scheme will be restricted to vehicles that are “substantially and permanently adapted for wheelchair or stretcher users, or originally designed for their use”. Insurance contracts entered into from 1 July 2026 on other vehicles provided under a qualifying scheme will be subject to the standard rate of IPT (12%).
Businesses leasing cars to users under the Motability scheme or insuring such vehicles, as well as users of the Motability scheme.
This measure will have effect from 1 July 2026.
The Motability scheme has been subject to recent press coverage given the number of registered vehicles. This measure is primarily directed towards payments made in addition to the transfer of benefits, as part of a broader package including non-tax changes to how Motability operates.
This measure is expected to generate revenue of £90m in 2026-27, rising to £305m by 2030 to 2031.