Motability tax relief removed
Not only has DWP removed "luxury" cars from Motability but also……..
In the November Budget, Chancellor Rachel Reeves announced that from July 2026, VAT will be applicable to Advance Payments, and Insurance Premium Tax will apply to Scheme leases. The Motability company, which manages the vast scheme accounting for one in five cars sold in the UK, has estimated that the average Advance Payment, or upfront cost, of a vehicle will rise by approximately £400 over the three-year package.
The insurance premium tax will be substituted with a standard rate of 12% applied to insurance policies for most new vehicle leases under this scheme. The DWP has stated that cars 'significantly adapted for wheelchair users' will not be affected by the tax alteration.
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@Wibbles in addition, they are to reduce the mileage limit, so you can't drive your Motability car as far. Because of this, returned cars will be worth more money! Motability are to use this extra cash to try and reduce costs placed on disabled people due to VAT and insurance tax. Though it may take a little time to sort this out.
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Just to clarify, Motability have not reduced mileage limits.
In their latest update they simply say they are reviewing mileage and lease terms as part of their wider response to the upcoming VAT and insurance tax changes. It’s only one of several areas they are looking at, nothing more than a review at this stage, and there is no indication yet of whether any mileage change will actually happen.
The current mileage allowance remains exactly the same. See link below from Motability’s latest published update dated 02 December 2025.
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I put "have" by mistake in my reply above, I have edited that out. In addition:-
As part of the recent government announcements, there will be a reduction in the current 20,000 yearly mileage limit for Motability cars, although the exact new limit has not yet been specified. I have read 15,000 miles, which is the upper limit of a private lease.
These changes are part of a broader review of the Motability Scheme, which aims to ensure sustainability and affordability while addressing concerns about the scheme's impact on taxpayers.
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Trevor, your second paragraph directly contradicts both the link I shared and the information provided by Motability and Andrew Miller. The Government has not announced any reduction to mileage limits. Andrew Miller did not announce a reduction. Motability have said only that mileage is being reviewed as part of their response to the new VAT and IPT rules, nothing more. Presenting this as a confirmed government decision is inaccurate.
The “addressing concerns about taxpayers” wording does not appear in Motability statements, government announcements, or anything Andrew Miller has said. It is your interpretation, not an official position.
IPT will apply to all customers as part of the insurance element, but Motability has said they will absorb as much as possible to limit the impact. Wheelchair accessible vehicles will remain VAT exempt, and that exemption is not affected by the new rules.
Motability is a private, not for profit organisation. The Government sets VAT and IPT policy. They have applied these tax changes, but how Motability chooses to manage the cost is a matter for the company itself, not something directed by the Government.
For accurate information about any changes, it’s always best to rely on official Motability updates or government publications rather than media summaries or other people’s interpretations.
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What exactly is IPT Insurance Premium Tax and how does it affect Motability customers ?
I thought that Insurance was provided by Motability rather than paid by customers and so would not be liable to any tax ?
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I don't think many Motability cars even do 10,000 miles a year, let alone 20,000? So this change won't affect many users and the vast majority of the cars won't be worth any more when returned either.
The ones who do more than 15,000 (if that is set as the new limit) will almost certainly be working and commuting, and will be able to afford the small additional charge for extra mileage.
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IPT is listed clearly on standard car insurance policies and it goes straight to the Government, not the insurer. When I insured my car for the year, I paid around 12% IPT on top of the policy, because it is a tax the Government adds to insurance policies, not a fee from the insurer.
The same principle is now being applied to Motability insurance, which was exempt from being charged IPT before. Customers are not being charged separately. The Government is simply applying the same tax to the insurance part of Motability leases that everyone else already pays on their own car insurance.
Motability have said they will absorb as much of the increase as they can to keep the impact low. For anyone with a current lease, nothing changes. Your terms and payments stay exactly the same. Any updates apply only to new leases from July 2026.
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They are also looking at ways to protect high‑mileage users where the extra mileage is linked to disability related needs, as Andrew Miller explains in the interview linked below.
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You have misread my post. "As part of the recent government announcements" That statement is not saying the government is reducing the mileage... Reducing the mileage limit is a viable way to reduce the increased costs on the disabled and it is being looked into. I have read it is being reduced to 15000 miles to tie in with a private lease.
"Addressing concerns about the scheme's impact on taxpayers" is a current issue and government has made statements about taxpayers which includes other political parties. If you think taxpayers don't have issues you are mistaken unfortunately. It is not my interpretation, that post is taken from an official statement off the internet!
The rest of your reply is known by interested people.
Reducing the mileage limit is a viable way to reduce the extra costs on the disabled as the returned cars will be worth more. I can't see any other way that can do it. It was Motability that came up with the idea for cost reduction.
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Thanks @Trevor_PIP. The way your post was phrased, “as part of the recent government announcements” followed immediately by the mileage point, made it sound as though the mileage reduction was one of the Government’s announcements rather than a separate internal review by Motability Operations. Now that you have clarified they were two different issues, I understand what you meant. And just to reiterate, Motability are reviewing mileage but nothing has been confirmed, as shown in the link I shared earlier. Anything circulating online at the moment is speculation rather than confirmed fact.
For clarity, Motability Operations is a private company and the scheme is not funded by taxpayers. The vehicle fleet is purchased through commercial loans, from banks and institutional lenders, which are repaid entirely through customer’s lease payments and customer deposits. The Government does not buy the cars or underwrite the borrowing, and people would still receive their mobility component exactly as they do now, whether they use the scheme or not.
The only public funding involved is the mobility component of PIP or DLA, which is a personal entitlement paid directly to the claimant. That payment would continue unchanged even if the Motability Scheme closed, so the overall cost to the taxpayer would remain exactly the same.
The current mileage review relates solely to residual values and affects Motability Operations and their lenders, not the DWP or the Treasury. It is a commercial decision, not a Government measure.
It is also important to be clear that the only circumstance in which taxpayers would see any financial “benefit” is if both the enhanced and the standard mobility rates were removed from every claimant, because that is the only part of the system funded by the state. Motability Operations is a private, non profit making company that receives no public funding, so its decisions have no impact whatsoever on taxpayer costs.
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I like your response. Yes, the mileage reduction is not definite, but could be a viable way to reduce the extra costs on the disabled. Thanks for the replies.
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I don’t think anything will be off the table at this point. Motability Operations will be looking at all the options available to them, but whatever they decide will need to work for customers as well as for their own business model.
They know how important it is to keep people feeling confident in the scheme, so I imagine they will be weighing things up very carefully.
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They have also introduced a fair usage policy on replacement tyres. Had an email to say they are only allowing 8 tyres over 3 years any more you will be liable for cost. This is from January 2026.
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Does that include punctures as well ?
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New, or replacement tyres is my understanding. Dont think repairs would count. I will try and find the new terms and conditions they sent when I get home.
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My ex partner has a mobility car, she had 2 punctures and took it to kwik fit to be repaired, she was told that they are not allowed to do repairs to mobility car tyres so replaced them them with new tyres.
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They WOULD say that - much more profit in a new tyre than a puncture repair !
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I checked and
"The Motability Scheme itself doesn't specifically ban repairs, but if the vehicle is part of the scheme, the tyres should be checked by an approved Motability dealer or a qualified repair centre to ensure they meet the safety and performance standards."
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