Motability Scheme Adds VAT on Top-Ups and Sets Mileage Caps From July 2026

Major changes to the Motability scheme took effect July 1, 2026, with new VAT and Insurance Premium Tax rules applying to most leases ordered after that date. GB News reported that Chancellor Rachel Reeves announced the overhaul in the 2025 Autumn Budget, stating it would raise £1 billion over the next five years by curbing tax breaks that had subsidized luxury vehicles beyond the scheme's core objectives.

Drivers now face 20 per cent VAT on top-up payments for more expensive vehicles and 12 per cent Insurance Premium Tax on related insurance.

The tax changes do not apply to wheelchair or stretcher users whose vehicles have been substantially or permanently adapted. New mileage rates set a 30,000-mile limit for standard three-year leases and 50,000 miles for five-year leases of wheelchair-accessible vehicles, with options to pay for extra miles or seek support in exceptional circumstances.

Motability announced the removal of luxury vehicles from the scheme and the discontinuation of overseas breakdown cover.

New leases include tyre replacements within fair use, allowing six tyres over three years with up to four for damage, and up to 10 tyres over five years when six are damaged. Motorists traveling to the European Union require a VE103 certificate, subject to a £22 administration fee for orders placed on or after July 1.

Motability CEO Andrew Miller said the company had worked to protect core elements of a lease and maintain the scheme's value.

Miller added that servicing, maintenance, breakdown cover, and insurance for up to three drivers remain unchanged. Rules differ slightly for drivers in Scotland, where Motability is working with the Scottish Government on a resolution.