From 1st July 2026, the Motability Scheme will introduce a number of important updates following changes to government tax rules.
These updates are designed to help the Scheme respond to rising costs while continuing to provide accessible, worry-free motoring for people who rely on it every day.
Why are these changes happening?
For many years, the Motability Scheme has benefitted from specific tax reliefs that helped keep leasing costs lower for customers. These reliefs have played a key role in making the Scheme as affordable and inclusive as possible.
However, upcoming changes to government legislation mean that some of these tax advantages will no longer apply in the same way. As a result, Motability is making adjustments to how the Scheme operates, ensuring it remains sustainable for the future while continuing to deliver the high level of support that customers expect.
VAT on Advance Payments
One of the most noticeable Motability lease changes is the introduction of VAT on Advance Payments for certain vehicles.
Advance Payments are the upfront contributions sometimes required when leasing a car through the Motability Scheme, depending on the model, specification or level of demand. Many vehicles currently have low or no Advance Payment, while others, particularly the higher spec or more premium options may require a now larger initial contribution.
From July 2026, VAT will be applied to these Advance Payments. This means that, for some vehicles, the upfront costs may increase. The exact impact will vary depending on the model you choose, so it’s worth reviewing your options carefully when the time comes to order.
Insurance Premium Tax (IPT)
Another important Motability VAT and insurance change relates to the insurance that is included in your lease.
At the moment, this insurance benefits from tax relief, helping to keep overall lease costs lower. From 1st July 2026, Insurance Premium Tax (IPT) will be applied at the standard rate to new leases.
While insurance will be still be fully included as part of the all-inclusive Motability package, which covers up to three named drivers, this new tax rate may lead to a modest increase in overall leasing costs.
Other changes to be aware of
Alongside these tax updates, there are a few additional adjustments for new leases placed from 1st July 2026:
Mileage allowance – updated limits will apply depending on the length of your lease.
Tyre replacement – fair use limits will be introduced, including allowances for accidental damage.
European travel – A VE103 certificate will be required for travel in Europe, with a small admin fee.
Importantly, many of the core benefits of the Scheme will remain unchanged, including:
Insurance cover (with up to three named drivers)
Servicing and maintenance
UK breakdown cover
Ongoing support from our Motability specialists
Car application submitted date | Before 1st July 2026 | Before 1st July 2026 | On/after 1st July 2026 |
Handover date | Before 1st July 2026 | On/after 1st July 2026 | On/after 1st July 2026 |
VAT on Advance Payments | Zero rate | Standard rate | Standard rate |
VAT on some in-life costs | Zero rate | Standard rate | Standard rate |
Mileage | 20,000 per year/60,000 for 3-year lease | 20,000 per year/ 60,000 for 3-year lease | 10,000 per year/30,000 for 3-year lease |
Excess mileage charge | 5p per mile (zero rate VAT) | 6p per mile (inclusive of VAT) | 25p per mile (inclusive of VAT) |
Tyres | 8 replacements for 3-year lease | 8 replacements for 3-year lease | 6 replacements for 3-year lease |
EU breakdown cover | Included free of charge | Included free of charge | Available with admin fee |
What this means for you
These Motability Scheme changes in 2026 will affect:
New Motability leases starting on or after 1st July 2026
Customers completing a Motability renewal in 2026 or later
Vehicle costs, including Advance Payments and insurance
If you already have a Motability lease, there’s nothing you need to do. Your current agreement will continue exactly as it is until your renewal date.
If your renewal is approaching, particularly between July and September 2026, it may be worth reviewing your options sooner rather than later to understand how these updates could affect your new vehicle.
Motability has made it clear that it is taking steps to reduce the impact of these changes wherever possible, with the aim of protecting the key mobility benefits and maintaining the Scheme’s accessibility.
Planning ahead
If you’re thinking about your next vehicle, now is a good time to explore what’s available and consider your priorities. Whether that’s keeping upfront costs low, choosing a specific model, or securing your order before the changes take effect.
Browse Motability cars available now
Or, if you’d like to talk things through, contact your local Vertu dealership for personalised advice and support.
- Motability