Electric vehicles (EVs) are no longer just niche green alternatives—they’re central to the climate, transportation, and economic agendas of major countries. In both the United Kingdom and the United States, EV adoption has surged, thanks largely to a combination of incentives, infrastructure development, and shifting consumer preferences.
But 2025 marks a significant year for EV policy, especially when it comes to taxation. In both countries, governments are adjusting their VAT, sales tax, and road tax policies—either phasing out incentives or introducing new tax structures to reflect growing EV adoption. These changes will directly influence the cost of ownership, market competitiveness, and future policy frameworks.
This article delves deep into how UK and US EV VAT and road tax policies compare in 2025. From purchase taxes to annual duties, we break down how the two nations are supporting—or complicating—the EV transition.
UK EV VAT and Road Tax Policy in 2025
VAT on EVs in the UK
Until recently, EVs in the UK were subject to the standard 20% VAT, the same as petrol or diesel cars. Unlike other European nations, the UK had not yet implemented a reduced VAT rate for zero-emission vehicles.
In 2025, this remains the case—new EV purchases are taxed at 20% VAT, regardless of battery size, range, or price. This has drawn criticism from environmental groups, who argue that maintaining such a high VAT on EVs disincentivizes adoption.
However, there are growing discussions in Parliament and among regulators about introducing a lower EV-specific VAT bracket, possibly around 10% or even 5%, by late 2025 or early 2026. These discussions are still in the consultation phase.
Road Tax: Vehicle Excise Duty (VED)
A significant change in 2025 is the inclusion of EVs in the Vehicle Excise Duty (VED) system. Previously, EVs were exempt from paying road tax, but as of April 2025, they are now subject to the same base VED as petrol and diesel vehicles.
- First-year VED (also known as the “showroom tax”) is now £165 for EVs, matching the flat rate for internal combustion engine (ICE) cars under the standard rate.
- Luxury EVs over £40,000 are also subject to the £355 annual supplement for 5 years, just like luxury petrol cars.
- Plug-in hybrids (PHEVs) already paid VED and continue to do so.
This change is primarily revenue-driven, as the UK Treasury faces declining fuel duty and VED revenue due to rising EV sales.
Other Considerations
- Congestion Charges and Ultra-Low Emission Zone (ULEZ) exemptions remain for EVs in cities like London, although these too may be phased out post-2025.
- Company car tax rates remain attractive: EVs are taxed at 2% Benefit-in-Kind (BiK), much lower than ICE counterparts.
US EV VAT and Road Tax Policy in 2025
Sales Tax on EVs
Unlike the UK’s uniform VAT system, the US tax structure is decentralized, meaning sales tax is levied at the state level.
In 2025, sales tax on EVs in the US varies dramatically by state:
- California: 7.25% base rate, though some local counties add up to 2.5% more. EV rebates can still offset the cost.
- Oregon: No sales tax at all, making EVs significantly cheaper.
- Texas: 6.25% base rate with no specific EV incentives remaining.
- New York: 4% state tax plus additional local taxes; however, the state offers a point-of-sale EV rebate of up to $2,000.
There is no federal sales tax in the US, and Congress has shown little appetite for a nationwide VAT-like system.
Road Tax: Registration Fees and Annual EV Taxes
Road tax in the US is more fragmented and often called registration fees or annual road use fees. These fees are increasingly being introduced specifically for EVs, since EV owners do not pay fuel taxes that traditionally fund roads.
In 2025:
- 28 states now charge an annual EV fee, ranging from $50 to $300.
- Some states, like Georgia and Michigan, justify higher EV fees to offset lost gas tax revenue.
- States like California and Colorado maintain lower fees but may increase them to meet infrastructure funding goals.
Federal Incentives and IRA Changes
The Inflation Reduction Act (IRA) has dramatically altered EV taxation in the US:
- The $7,500 federal tax credit still applies to qualifying EVs made in North America with battery components sourced from approved countries.
- In 2025, the Treasury introduced “point-of-sale” application of the credit, meaning buyers get an immediate discount instead of waiting for tax season.
- However, eligibility is complex, with income caps, vehicle price limits, and battery origin rules.
Other Tax Benefits
- EV chargers installed at home qualify for a 30% tax credit up to $1,000.
- States like New Jersey continue to offer full sales tax exemption for EVs.
Comparing UK vs US: EV VAT/Sales Tax in 2025
| Criteria | UK | US |
|---|---|---|
| Type of Tax | Value Added Tax (VAT) | State-level Sales Tax |
| Tax Rate | 20% on EVs | 0% to 10% depending on state |
| Tax Reliefs | None nationally (discussed) | Some state rebates & exemptions |
| Point-of-Sale Discounts | No | Yes, in some states and via IRA |
| System Type | Centralized | Decentralized (state-specific) |
The UK has a centralized and uniform tax structure, while the US offers more variability, which can benefit consumers in EV-friendly states.
Comparing UK vs US: EV Road Tax in 2025
| Criteria | UK | US |
|---|---|---|
| Road Tax Name | Vehicle Excise Duty (VED) | Registration Fee / EV Road Use Fee |
| EVs Included? | Yes, from April 2025 | Yes, in most states |
| Annual Cost | £165 + £355 (if over £40K) | $50–$300 depending on the state |
| Fee Justification | Equalize ICE and EV treatment | Recover lost gas tax revenue |
| Luxury Vehicle Surcharge | £355 if over £40,000 | Rare or not applicable in most states |
The UK imposes a uniform EV road tax with luxury surcharges, while the US imposes EV-specific fees, often higher than for gas vehicles.
Consumer Impact: Which Country Favors EV Buyers More in 2025?
Purchase Cost
- US buyers benefit more if they live in states with low or no sales tax and qualify for IRA credits.
- UK buyers pay full VAT with no relief, making EVs relatively more expensive at purchase.
Ownership Cost
- The UK’s VED for EVs is moderate, but luxury surcharges apply.
- The US’s EV fees can be steep, especially in states with high registration charges.
Company Vehicles and Fleets
- UK businesses enjoy extremely favorable tax treatment via BiK rates.
- US fleet operators must navigate a patchwork of state rules, though federal credits ease upfront costs.
Policy Outlook: What’s Changing After 2025?
In the UK:
- Strong lobbying pressure to reduce EV VAT to 5% by 2026.
- Road pricing schemes (pay-per-mile) are being evaluated as a long-term replacement for VED and fuel duties.
- EV drivers may lose congestion charge exemptions by 2027 in some cities.
In the US:
- States may increase EV-specific road use fees further.
- Calls for a national EV tax standard may gain traction.
- Possible adjustments to IRA eligibility as battery sourcing rules evolve.
Global Implications
These tax shifts signal a global trend: the era of blanket EV tax exemptions is ending. Governments want EVs to carry their fair share of revenue responsibilities while continuing to promote cleaner transport. Other regions, such as the EU and Australia, are watching the UK and US closely as they adjust their own EV tax codes.
Frequently Asked Questions (FAQs)
- Are EVs still tax-exempt in the UK in 2025?
No, from April 2025, EVs are subject to Vehicle Excise Duty (VED) like petrol and diesel cars. - Does the UK offer a reduced VAT rate for EVs in 2025?
Not yet. All new EVs are still taxed at the standard 20% VAT rate, although changes may come soon. - Do US states charge EV-specific road taxes?
Yes, most states now impose annual road use or registration fees for EVs, which vary widely. - Is there a nationwide EV sales tax in the US?
No. Sales tax is determined at the state and local level, so it ranges from 0% to over 10%. - Can US EV buyers still get the $7,500 federal tax credit in 2025?
Yes, but eligibility depends on where the car is made, battery origin, and buyer income level. - Do US EV buyers get the tax credit upfront?
As of 2025, yes. Buyers can apply the credit at the dealership for an immediate discount. - Are EVs in the US taxed the same as gas cars?
No, they often pay higher annual registration fees due to their exemption from fuel taxes. - Do UK EV owners pay more road tax if their car is expensive?
Yes. Cars over £40,000 incur an extra £355 per year for five years. - Which country has more favorable EV tax rules in 2025?
It depends. US buyers in friendly states may benefit more upfront, while UK fleet operators enjoy lower BiK rates. - Will EVs get more expensive due to these tax changes?
Likely yes. As incentives fade and taxes rise, upfront and ownership costs will gradually increase.