New tax rule changes for the Motability Scheme are set to come into force on Wednesday, July 1, 2026, affecting leaseholders in England and Wales. However, recipients of disability benefits from Social Security Scotland will not be impacted by these modifications, as confirmed by Motability.
Motability has stated that individuals receiving Adult Disability Payment (ADP), Child Disability Payment (CDP), or Scottish Adult Disability Living Allowance (SADLA) will continue to access the current lease package while discussions with the Scottish Government continue. The organisation emphasised that the changes announced for customers across the UK from July 1 "will not be introduced for customers who receive their allowance from Social Security Scotland" at this time. This is because the scheme operates under a separate agreement in Scotland known as the Accessible Vehicles and Equipment Scheme (AVES).
Scope of the Motability Scheme
The Motability Scheme supports hundreds of thousands of disabled people and families across Great Britain by enabling them to lease a car, wheelchair accessible vehicle, scooter, or powered wheelchair. Eligible claimants can exchange all or part of their enhanced mobility award from a qualifying disability benefit such as Personal Independence Payment (PIP) or Disability Living Allowance (DLA).
It is important to understand that nobody using the Motability Scheme gets a 'free car'. Most of the 815,000 people with a current lease—including around 80,000 in Scotland—often have to make an additional up-front payment. Despite the changes, the organisation has said it will continue to provide the best possible leasing package for disabled people with a range of suitable vehicles to meet their needs.
The Motability Foundation, the independent charity responsible for overseeing the Scheme, will continue to offer means-tested grants to support eligible people who would otherwise struggle to afford specialist adaptations for a vehicle leased through the Scheme.
Details of the Tax Changes
The upcoming changes relate to qualifying schemes, the only current example of which is the Motability scheme, which leases vehicles with preferential tax treatment to disabled people in receipt of eligible welfare benefits. The guidance from HM Revenue and Customs (HMRC) states: "The policy objective for the measure is to promote fairness and value for money for taxpayers. VAT changes restrict tax reliefs for more expensive vehicles provided under qualifying schemes, while IPT changes bring the tax treatment of qualifying schemes in line with other commercial lease providers."
VAT Changes
Eligible benefits paid to claimants by the DWP, the Ministry of Defence, Social Security Scotland, or the Department for Communities (Northern Ireland) can be used to cover the cost of leases. This part of the payment will be disregarded in terms of valuing the supply for VAT purposes, meaning no VAT will be applied to it. However, the measure will remove the VAT zero-rate on top-up payments in England and Wales, made in addition to the transfer of eligible welfare benefits, for those who pay more to lease higher value vehicles. This top-up payment will be subject to the standard rate of VAT (20%).
These changes will have no impact on the existing zero rate for vehicles designed or substantially and permanently adapted for wheelchair or stretcher users. Top-up payments for such vehicles will therefore remain zero-rated.
Insurance Premium Tax (IPT) Changes
The guidance states: "This measure restricts the Insurance Premium Tax (IPT) exemption for insurance on vehicles leased through qualifying motor vehicle leasing schemes. Once changes take effect, the exemption will apply only to insurance contracts relating to vehicles that are substantially and permanently adapted for wheelchair or stretcher users, or originally designed for their use, where leased through a qualifying scheme. All other vehicles provided through such schemes will be subject to IPT at the standard rate of 12 per cent. The liability of insurance relating to all vehicles provided through leases entered into prior to 1 July 2026 will remain exempt."
Eligibility for the Motability Scheme or AVES
To be eligible to join the Motability Scheme or AVES, you need to receive one of the qualifying mobility allowances with at least 12 months left on your award. These include: the higher rate mobility part of Personal Independence Payment (PIP), the enhanced rate mobility part of Adult Disability Payment (ADP), the higher rate mobility part of Disability Living Allowance (DLA), the higher rate mobility component of Child Disability Payment (CDP), the higher rate mobility component of Scottish Adult Disability Living Allowance (SADLA), Armed Forces Independence Payment (AFIP), and War Pensioners' Mobility Supplement (WPMS).
Guidance on the Motability website states: "You cannot apply to join the Scheme if you receive a lower rate or component of the mobility allowance or if you receive Attendance Allowance, Carer's Allowance or Employment and Support Allowance (ESA)." A full guide on how the scheme works can be found on the Motability website. If you are choosing a car or wheelchair-accessible vehicle, it is important to be aware that while some only use part or all of the mobility award payment, most require an advanced fee which can range from between £100 and £2,000.
What Else Is Included in the Lease?
At present, you will get a brand-new vehicle and a full package which includes: insurance, servicing and maintenance, full RAC breakdown assistance, yearly tax, three drivers (you can change them whenever you like), Kwik Fit replacement tyres, windscreen repair or replacement, a 60,000 mileage allowance over three years (or 100,000 for WAV), many adaptations at no extra cost, and wheelchair accessible vehicles.
Full details on the Motability Scheme can be found on the website. Below is a quick guide on the Accessible Vehicles and Equipment Scheme and how to swap all or part of your mobility payment to lease a vehicle.
How the New Scheme Works in Scotland
Social Security Scotland guidelines state: "When you lease a vehicle through the scheme, it will be with our authorised provider, Motability Operations Ltd." Social Security Scotland will help you pay the lease using all or part of either the higher rate of the mobility component of Child Disability Payment or the enhanced rate of the mobility component of Adult Disability Payment.
You can apply to lease a vehicle for yourself if you meet all of the following: you get the higher rate of the mobility component of Child Disability Payment or the enhanced rate of the mobility component of Adult Disability Payment, you are 16 or over, and you are able to manage your own payments. Social Security Scotland also advises that you may be able to apply to lease a vehicle on behalf of someone else, such as a parent or guardian of a child receiving the higher rate of the mobility component of Child Disability Payment, or an appointee for someone receiving the higher rate of the mobility component of Child Disability Payment or enhanced rate of the mobility component of Adult Disability Payment.
To apply, go to the Motability website where you can choose a vehicle and find a dealership. When visiting a dealership, you need to present your certificate of entitlement, which Social Security Scotland states you will find included in your decision award letter. Find out more about Adult Disability Payment and leasing an accessible vehicle on the mygov.scot website.
