From 1st July 2026 the Motability Scheme is set to undergo some important changes – changes that are relevant to you – following updates to government tax rules.
These changes will affect the tax reliefs that have historically helped keep the Scheme affordable for customers. As a result, Motability are reviewing how the Scheme operates to manage rising costs while continuing to provide accessible transport for its customers.
VAT on Advance Payments
One key change involves Value Added Tax (VAT) being applied to Advance Payments on certain vehicles. Advance Payments are the upfront costs sometimes required when leasing a car through the Motability Scheme, depending on the model you choose. From July 2026, these payments will include VAT, which may increase the initial cost for some customers choosing higher-spec or more expensive vehicles.
Insurance Premium Tax changes
Another update is the introduction of Insurance Premium Tax (IPT) on the insurance included in Motability leases. Currently, insurance provided through the Scheme benefits from tax relief. Once the new rules take effect, the insurance element of leases will be subject to IPT at the standard rate.
What this means for you
These changes will mainly affect new leases starting on or after 1st July 2026, or customers renewing their agreement after this date. If you have an existing lease, it will not change until renewal. Motability has stated it will work to minimise the impact and continue to keep the Motability Scheme as affordable and accessible as possible.
- Motability