Luxury car brands such as BMW and Mercedes Benz are being removed from the Motability scheme immediately, it is being widely reported.
Although only about one in twenty cars leased under the scheme are from premium manufacturers, and claimants have to meet the additional costs from their own pockets, their availability has been a cause of outrage in parts of the media for some time.
Motability will now aim to ensure that 50% of the vehicles it provides are made in the UK by 2035, giving a boost to British manufacturers.
It had been reported that the chancellor was planning to end VAT exemption for the Motability scheme, but this plan was widely criticised as likely to put the programme out of the financial reach of most claimants. The move to ban luxury cars is seen as an attempt by the government to look like it is cracking down on the Motability scheme, but will not save the exchequer any money at all.
Budget update
VAT relief for top-up payments made to lease more expensive vehicles will be removed for new leases from July 2026, so VAT will be payable at 20% on top-ups.
Insurance Premium Tax will apply at the standard rate of 12% to insurance contracts on the Scheme.
These tax changes will not apply to vehicles designed for, or substantially and permanently adapted for, wheelchair or stretcher users.
Motability will remove luxury vehicles from the scheme, discontinue the inclusion of overseas breakdown cover and reduce their lease mileage limit. The government say that this will bring Motability leases more in line with those available commercially to most people.
Together, these measures are expected to save just over £1bn by 2030.
