The Autumn Budget 2025 has confirmed a series of significant tax reforms to the Motability Scheme, marking one of the most substantial programme changes in recent years. The Government said the updated framework is designed to ensure the long-term sustainability of the scheme while better aligning it with mainstream leasing structures.
Key Tax Changes Coming into Force
The reforms will limit the tax breaks currently available to Motability, with the first changes taking effect from July 2026. These include:
Removal of VAT relief on top-up (Advance Payment) contributions used by customers to lease higher-cost vehicles for new agreements.
Application of standard-rate Insurance Premium Tax (IPT) to insurance products provided through the scheme.
Retention of VAT relief on core elements such as weekly lease costs and the resale of returned vehicles.
Exemptions maintained for vehicles designed for, or permanently adapted to accommodate, wheelchair or stretcher users.
According to the Government, these changes aim to ensure that Motability continues to offer a broad range of affordable vehicles, including models available without any Advance Payment, while keeping disability benefit eligibility completely unaffected.
Refocusing the Scheme’s Core Purpose
Alongside the tax reforms, Motability Operations will be required to sharpen its focus on the scheme’s original objectives. As previously outlined, this will include:
Removing luxury vehicles from the vehicle list.
Ending overseas breakdown cover as part of standard leases.
Reducing the mileage allowance, bringing agreements more closely in line with typical commercial leasing arrangements.
The Government expects these measures—combined with wider reforms across qualifying schemes—to generate savings of over £1bn across five years, supporting wider welfare policy commitments such as removing the two-child limit in Universal Credit.
Impact on Current and Future Customers
Motability has confirmed that customers with existing leases will see no changes, with all adjustments applying solely to new agreements from the implementation date.
The scheme will continue to offer 40–50 vehicles with no Advance Payment, maintaining accessible options for drivers with lower budgets. Funding support will also remain in place for wheelchair-accessible vehicles (WAVs) and essential vehicle adaptations.
The organisations emphasise that the scheme’s long-standing mission—to support disabled people in accessing employment, education and independent mobility—will remain central as it evolves to meet future challenges.