What the Motability Changes Are
Starting 1 July 2026, for qualifying motor vehicle leasing schemes under Motability:
- VAT will apply to advance payments (top-ups) that customers pay if they choose more expensive vehicles.
- Insurance Premium Tax (IPT) will apply to new leases entered on or after 1 July 2026 — the exemption for IPT is removed for most vehicles, except those substantially and permanently adapted for wheelchair or stretcher users.
- Existing leases continue under previous treatment; renewals after that date are subject to the new rules. (gov.uk)
Who Is Affected
- Disabled people using Motability, especially those who opt for higher-cost models requiring advance payments.
- Families running budgets based on previous cost exclusions.
- Vehicle lease providers and insurers who must navigate updated VAT and IPT obligations.
Options & Practical Tips
- For customers: evaluate whether staying with basic vehicle models (no advance payment) remains most cost-effective.
- Consider whether financial support from Motability Foundation is applicable to help with advance payments or adapted vehicles.
- For providers: adjust quotes, contracts and promotional material to reflect new tax burdens post-1 July 2026.
- Ensure lease renewals are assessed under new tax rules and customers are informed.
Impact on Tax & Welfare Policy
- Broadens the tax base by removing some zero-rating and exemptions.
- Aims to improve fairness in taxpayer contributions while balancing the need to support mobility and independence for disabled users.
- Estimated to save taxpayers £1 billion by 2030. (gov.uk)
Example Scenario
- Prior to 1 July 2026: a Motability user could get a lease without VAT on advance payment and IPT exemption.
- After 1 July 2026: for a superior car that requires a “top-up” payment by the user, VAT applies on that top-up; IPT is charged on the lease unless the vehicle qualifies as substantially adapted.
Key Advice
- If considering changing your Motability lease, act before or after 1 July 2026 with awareness of how costs shift.
- Consult with Motability scheme advisers to understand eligibility and potential support.
- Businesses in the leasing and insurance sectors must update compliance, quoting systems and clarifying tax treatment in customer materials.