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Does Driving an Electric Car Lower Your Road Tax – and How Else Could it Save You Money?

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Filed under Automotive, Editorial, Electric Vehicle

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Electric vehicles have long been touted as the vehicles of the future, with many governments around the globe encouraging citizens to go electric on new car purchases. Besides being environmentally friendlier, electric vehicles also promise lower maintenance costs, better performance, and savings in mileage since electricity is much cheaper than gas.

Many governments have also put various incentives in place on EVs and hybrids in an attempt to help the switch. And as you might have guessed, this includes tax incentives. So, can driving an EV really lower your vehicle excise duty (VED) or road tax? Let’s find this out, alongside ways an EV could save you money.

What Is Road Tax?

Also known as VED (Vehicle Excise Duty), road tax is simply a levy imposed on any vehicle that uses public roads. In places like the EU and the UK, vehicle tax is often taxed as an annual fee, whereas in the US, it is more often levied at the point of purchase alongside an annual registration fee.

Car taxation systems vary from one country to the other and may depend on whether it’s a commercial vehicle or a personal car. Indeed, however, road tax when driving an EV is much more lenient today, and in several ways.

How an EV Can Lower Your Road Taxes 

An EV means Lower Emissions

One of the biggest perks about electric vehicles is that they are usually associated with lower carbon dioxide emissions compared to their gasoline engine counterparts. They are greener and environmentally friendlier.

Since road tax is more often changed based on a car’s level of CO2 emissions, you can expect to pay less if you drive a hybrid; and even less if you drive a pure EV. In the UK, pure electric vehicles are actually exempt from vehicle tax since they don’t emit any CO2. Other taxes such as Benefits In Kind may also be lower if you have to pay them at all.

You Could Avoid VAT on Your EV Using a Salary Sacrifice Car Scheme

Another great way an EV could save you money is if you purchase it using a salary sacrifice car scheme. Giving up a portion of your payslip to finance an EV can see you enjoy even more of the tax benefits of an electric car as opposed to leasing. Besides potentially reducing the amount you pay on VAT, a salary sacrifice scheme could help you save as much as 60% of the total price of the EV.

US Federal EV Tax Credits: Amounts and Eligibility 

As earlier mentioned, buyers of new electric vehicles may be eligible for a federal tax credit of up to USD 7,500. When buying a used EV, you could enjoy a tax credit of up to USD 4,000. Currently, these come in the form of deductions you can make in the following year’s tax period.

However, EV buyers from 2024 will be able to apply for the EV tax credits at the point of purchase, which will mean a significant reduction in the buying price or car financing.

Currently, several EV tax credit eligibility requirements exist. These include:

  • Have a (MAGI) modified adjusted gross income equal to or less than $150,000 (for single filers)
  • Have a MAGI equal to or less than $300,000 (for joint filers)
  • A MAGI equal to or less than $225,000 (for household heads)
  • Price Cap: The new car price should be equal to or less than $55,000 or $80,000 for trucks, SUVs, Vans

Lower Fuel Bills with an Electric Car

If you’re driving a hybrid car, it means that you will spend significantly less each week or month on fuel. A pure EV will mean totally eliminating gas expenses, a commodity whose costs have been surging incredibly in recent times. Since gas is among the most highly-taxed commodities, an EV significantly reduces what you spend on vehicle-associated taxes.

Indeed, an EV can be a great way to not only save money on vehicle purchases, but also on vehicle maintenance costs, and taxes. This is not to mention that being an EV driver also makes you a friend of the environment.


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