Motability 2026 Update – DWP Confirms £400 Tax Cost and Who’s Exempt

Motability users are facing big changes in 2026, with an average £400 increase expected in the upfront cost of new vehicles—thanks to tax changes announced in the UK Budget. But the Department for Work and Pensions (DWP) has responded with some clarifications, including who’s exempt, and what help will be available for those hit hardest.

If you’re a Motability Scheme customer, or planning to join the Scheme soon, here’s everything you need to know about the upcoming changes, who will be affected, and what support options are on the table.

Changes

Starting in July 2026, two major tax changes will apply to the Motability Scheme:

• VAT will be added to Advance Payments—the upfront cost paid for leasing a car.
• Insurance Premium Tax (IPT) will be applied to all Scheme leases.

The Motability Foundation estimates these changes will increase the average cost by around £400 over a standard three-year lease. For many disabled drivers and their families, this new cost is a serious concern.

Reason

According to the government, these changes are about fairness. The plan is to bring Motability’s tax treatment more in line with commercial car leasing firms. In a written response, DWP Minister Sir Stephen Timms stated the government had worked directly with the Motability Foundation prior to the Budget announcement. However, due to time constraints, no public consultation will be held before the changes take effect.

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Some MPs have raised concerns about this. Labour MP Neil Duncan-Jordan questioned whether a wider consultation should have been considered, especially given the potential burden on disabled people already managing tight finances.

Exemptions

There is good news for some users: not all Motability customers will be affected.

The DWP has confirmed that cars substantially and permanently adapted for wheelchair or stretcher users, or originally designed for that use, will still be exempt from VAT and IPT under the existing rules.

So, if you drive a wheelchair accessible vehicle (WAV) or one heavily adapted for medical needs, you won’t pay the extra £400. These exemptions remain in recognition of the higher costs already associated with such vehicles.

Support

The Motability Foundation says they will continue offering means-tested grants for people who struggle with the upfront cost. These grants are already in place to support people who:

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• Can’t afford the Advance Payment
• Need a wheelchair accessible vehicle (WAV)
• Require expensive vehicle adaptations

Even with the tax changes, Motability Operations says it will maintain a wide range of vehicles with no Advance Payment required—ensuring access to suitable vehicles for those on tight budgets.

Impact

While £400 may sound manageable to some, it’s a lot for low-income households—especially when added to rising fuel prices, car insurance, and energy bills.

And don’t forget, this is happening at the same time as the Social Security COLA increase in 2026, which is about £56 per month for the average recipient. That COLA may barely cover new costs like Medicare premiums, let alone the added expense of a Motability lease.

Still, the government insists that the changes won’t block access to vehicles. According to the DWP, people will still be able to lease a car using only their disability benefit, as long as they choose one of the no-payment options available.

Next

Motability Operations has confirmed that:

• Customer engagement will begin in spring 2026
• Changes will take effect in July 2026
• The Motability Foundation will conduct a disability impact assessment before any final decisions are made

That means you still have time to plan—and if you’re renewing a lease in 2025 or early 2026, you might avoid the new costs altogether for a few more years.

The key takeaway? If you’re already using the Scheme or planning to join, it’s worth checking if your needs qualify you for VAT and IPT exemptions, or grant support from the Motability Foundation.

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