Motability changes launching today will have major impact on thousands of drivers - full list of new rules

Major changes to the popular Motability scheme are being rolled out today as the Government cracks down on tax breaks and luxury vehicles.

Chancellor Rachel Reeves announced an overhaul of Motability rules in last year's Autumn Budget, in a move that she said would raise £1billion over the next five years.

The Budget claimed that the Motability Scheme benefits from "generous" tax breaks that subsidise provision beyond the core objectives of the service, including the lease of luxury vehicles.

Significant changes include new VAT and insurance tax rules, in addition to the removal of extra add-ons, like European breakdown cover.

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Most new leases ordered after today (Wednesday, July 1, 2026) will face new charges from VAT and Insurance Premium Tax, with Motability taking steps to ensure the service remains "sustainable".

Drivers will now be subject to 20 per cent VAT on top-up payments, which are made in addition to the transfer of eligible welfare payments for more expensive vehicles.

Insurance Premium Tax will be applied at the standard rate of 12 per cent for insurance related to vehicles leased through the scheme.

However, tax changes will not apply to wheelchair or stretcher users where their vehicles have been substantially or permanently adapted for their use.

New mileage rates have also been outlined, including 30,000 miles for a new three-year lease, and 50,000 miles for a five-year lease of a wheelchair-accessible vehicle.

Motorists who need to drive more than the allotted mileage can pay for extra miles, and Motability may be able to support them under "exceptional circumstances".

The Budget stated that Motability Operations "will better focus their scheme on achieving its core aims" alongside other changes.

Motability announced that it would remove luxury vehicles from the scheme and discontinue the inclusion of overseas breakdown cover.

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New leases will include tyre replacements, provided they are within fair use. Motability states that most customers replace two or fewer tyres during a three-year lease.

Drivers will be allowed six tyres during a three-year lease, with up to four being for damage, while six damaged tyres can count towards the allocation of 10 tyres during a five-year lease.

When travelling to the European Union, motorists will need a VE103 certificate, alongside a £22 administration fee for orders placed on or after July 1.

Commenting on the new changes, Motability CEO Andrew Miller said the company had worked to protect what matters most in a lease and maintain the value of the Scheme.

He added: "I want to acknowledge that some of these changes will be difficult and may affect you.

"I understand that any increase in costs or changes to what you receive can be worrying and frustrating, particularly when you rely on the Scheme every day for your independence."

Mr Miller confirmed that several crucial aspects of the scheme would not be changing, including servicing and maintenance, breakdown cover and insurance for up to three drivers.

Rules are slightly different for drivers in Scotland, which operates under a separate agreement, with Motability working with the Scottish Government to find a resolution.

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