Significant tax changes affecting the Motability Scheme, a vital service for disabled people across the UK, have been confirmed by Chancellor Rachel Reeves in the Autumn Budget. The reforms, which will alter the VAT and Insurance Premium Tax (IPT) treatment of certain vehicle leases, are scheduled to take effect from 1 July 2026.
What is changing for Motability users?
The Motability Scheme allows over 815,000 eligible individuals to lease a car, scooter, or wheelchair-accessible vehicle by using their mobility allowance from benefits like the Personal Independence Payment (PIP). The new measures aim to adjust the tax reliefs currently in place.
From the implementation date, the VAT zero-rating on additional 'top-up' payments will be removed for those choosing to lease higher-value vehicles. These extra payments will become subject to the standard 20% VAT rate. However, a crucial exemption remains: vehicles that are substantially and permanently adapted for wheelchair or stretcher users, or originally designed for such use, will keep their zero-rated status for top-up payments.
Insurance Premium Tax exemption restricted
Parallel changes will apply to Insurance Premium Tax. Currently, insurance for vehicles leased through the scheme is exempt from IPT. After 1 July 2026, this exemption will be limited only to insurance for wheelchair-accessible or stretcher vehicles leased through the scheme.
For all other vehicles provided under the Motability Scheme, the related insurance contracts will be subject to IPT at the standard rate of 12%. The government states this brings the tax treatment in line with other commercial lease providers.
Who will be impacted and what support remains?
The changes will affect qualifying schemes leasing vehicles to disabled people—currently, this is solely the Motability Scheme—and the businesses that provide them with insurance. It is vital to note that existing leases agreed before 1 July 2026 will not be affected by the new tax rules.
The Motability Foundation, the independent charity overseeing the scheme, will continue to provide means-tested grants to help with the cost of specialist vehicle adaptations. The scheme itself will also continue to operate, offering a range of vehicles to meet users' needs.
HM Revenue and Customs (HMRC) has published full guidance on the proposed changes online. The government's stated objective is to promote fairness and value for money for taxpayers by restricting tax reliefs on more expensive vehicles.
