A major change is coming to the Motability Scheme in 2026, and for many users, it could mean paying more — around £400 more on average. This follows the UK government’s November Budget announcement that Advance Payments will be subject to VAT and that Insurance Premium Tax (IPT) will be applied to Motability leases starting July 2026.
Understandably, disabled motorists and advocacy groups have raised concerns about the extra financial burden. In response, the Department for Work and Pensions (DWP) has provided new statements outlining who will be affected, who is exempt, and what support may be available.
Let’s break down the latest update.
The Cost Increase
Motability Operations, which runs the scheme, says the upcoming changes will add around £400 to the Advance Payment required for a typical vehicle lease. This is due to two changes:
- VAT will apply to Advance Payments
- Insurance Premium Tax will apply to all leases — unless the vehicle is substantially adapted for wheelchair or stretcher use
For most users, the total cost over a three-year lease will go up. Those choosing higher-spec or larger vehicles may see even bigger increases.
Who’s Affected
The new charges will apply to new leases starting from July 2026. If you’re already in a lease before that date, you won’t see any change.
But from mid-2026 onward, unless your car meets certain criteria, you will likely pay more. The changes are expected to affect thousands of new users who lease standard cars through the scheme.
Here’s a summary:
| Change | Applies To | Starts |
|---|---|---|
| VAT on Advance Payment | All new standard leases | July 2026 |
| Insurance Premium Tax (IPT) | All new leases not adapted for wheelchair use | July 2026 |
Who’s Exempt
The good news is that some users will not be affected. The DWP has confirmed that:
- Wheelchair Accessible Vehicles (WAVs)
- Vehicles substantially and permanently adapted for wheelchair or stretcher users
- Vehicles originally designed for wheelchair use
will continue to benefit from VAT relief on Advance Payments and remain exempt from IPT.
So if you rely on an adapted vehicle, your lease will stay tax-free — even after July 2026. Existing leases for all users will also remain unchanged until renewal.
No Public Consultation
In Parliament, Labour MPs called on the government to consult disabled people before implementing these changes. But Sir Stephen Timms, Minister of State for the DWP, said there will not be a public consultation. He cited the need to implement the change quickly and said the government had already worked closely with the Motability Foundation before making the announcement.
In his words: “The need to deliver change quickly means a consultation is not always practicable.”
Instead, the Motability Foundation will carry out a disability impact assessment before any lease package changes are finalised. They will also engage with customers in spring 2026.
Support Available
To help those hardest hit by the added costs, the Motability Foundation will continue offering means-tested grants. These grants can cover:
- Advance Payments for those who can’t afford the upfront cost
- Adaptations for vehicles
- Wheelchair accessible vehicles
The aim is to ensure that disabled people with the greatest need are not locked out of the scheme due to rising costs. The DWP also emphasised that a wide range of vehicles will still be available without an Advance Payment, helping users on tighter budgets.
Government’s View
Sir Stephen Timms defended the changes, saying they would bring the scheme’s tax treatment more in line with commercial leasing providers, while still protecting those with the highest mobility needs.
He said: “The package of reforms will ensure fairness for the taxpayer, while continuing to support disabled people.”
From a policy angle, the move is part of the government’s broader effort to reduce exemptions and streamline how tax rules apply across different sectors.
What Motability Users Should Do
If you’re currently in a Motability lease, you don’t need to do anything — your lease will not change.
But if you’re due to renew or enter a new lease after July 2026, consider the following:
- Find out whether your vehicle will qualify for VAT/IPT exemptions
- Check if you may be eligible for a grant from the Motability Foundation
- Monitor announcements in spring 2026 when customer engagement begins
- Review your vehicle options to see what’s available with no Advance Payment
The DWP and Motability stress that no one will be forced out of the scheme, and suitable, affordable options will continue to be offered.
FAQs
When do Motability tax changes start?
In July 2026, for all new vehicle leases under the scheme.
How much more will users pay?
Around £400 more on average due to VAT and IPT changes.
Who is exempt from the tax changes?
Users of vehicles adapted for wheelchair or stretcher use.
Will current leases be affected?
No, existing leases before July 2026 won’t be impacted.
Can I get help with higher costs?
Yes, through means-tested grants from the Motability Foundation.
