In November 2025, the government announced its Autumn 2025 Budget, which included changes to those using the Motability Scheme to lease vehicles. These changes will affect some users, but it can be difficult to understand exactly what is changing and who will be impacted.
We’ve broken it down in this post to help answer any questions you may have about what has changed.
What is changing?
Let’s break down what is changing in the Motability Scheme from 1 July 2026. It’s important to note that the top-up and IPT changes do not apply to vehicles permanently adapted for wheelchair users or stretcher users.
Top-up payments will now be subject to VAT. Currently, those with Motability Scheme leases can make extra, or ‘top-up’, payments in addition to the benefit-paid portions of their lease. People do this to lease higher-value vehicles. From 1 July 2026, these top-up payments will be subject to 20% VAT, in line with the standard rate.
Insurance Premium Tax (IPT) will now apply to many leases. Currently, all Motability leases benefit from an IPT exemption. From 1 July 2026, the insurance on standard vehicles will be subject to the standard IPT rate of 12%.
Luxury vehicles will no longer be eligible under Motability. Currently, Motability leases can cover luxury and premium vehicles. From 1 July 2026, these vehicles will be removed from the eligible vehicle list for new Motability Scheme leases. These include BMW, Audi, Lexus, and Mercedes-Benz, as well as all coupés and convertibles.
Why is it changing?
The government claims that these changes are to promote “fairness and value for money for taxpayers”. They argue that the current tax reliefs (particularly the exemption from IPT and VAT on top-ups) for vehicles leased through Motability have led to situations where people using the scheme effectively get partially paid access to higher value cars.
The government believes that this goes beyond the original purpose of the scheme, which is to provide mobility support to disabled people, rather than subsidise luxury vehicles. This is also why they’ve removed luxury vehicles from the eligible lease list – they say they want the focus to be on vehicles that prioritise value, reliability, and accessibility.
By applying VAT to top-up payments and standard-rate IPT to insurance (excluding vehicles adapted for wheelchairs and stretchers), the government plans to curb what it views as generous taxpayer subsidies for more expensive vehicle leases under the Motability scheme. Their goal is to redirect support towards more modest, practical, and cost-effective vehicles.
What is staying the same?
Not everything is changing under the government’s new changes starting July 2026. Here is a clear look at what is staying the same for Motability users:
Lease payments funded by welfare benefits will stay VAT-free. The very foundation of the scheme is to remain untouched. Any part of your lease that is funded by a mobility allowance, such as PIP or DLA, will continue to be zero-rated for VAT.
Wheelchair-adapted and stretcher-adapted vehicles will continue to receive full tax protection. Those with a lease for permanently adapted wheelchair accessible vehicles, or vehicles adapted for stretchers, will not have VAT applied to their top-up payments or IPT applied to the insurance portion of their lease.
Powered wheelchair and scooter leases remain unaffected. Because these mobility aids fall under different VAT rules, their VAT reliefs and insurance arrangements will remain unchanged.
Who is likely to be affected by the changes?
Let’s look at which Motability scheme users will be affected by the 2026 changes. It’s very important to note that these changes will only affect those getting a new lease on or after 1 July 2026, and those who renew their existing lease on or after that same date.
- People who choose vehicles that require top-up payments
- People who need vehicles that require top-up payments
- People leasing standard (non-adapted) vehicles
Complaints and concerns
Charities and advocacy groups are campaigning against these changes over various concerns.
One of these complaints is that some people need to lease vehicles that require top-ups, such as those with disabled children who require much larger vehicles for storing medical equipment, and wheelchair users who don’t need a full WAV but require lowered floors and extra space for hoists. Groups state that these vehicles are often a need, not a want, and so the changes will end up penalising people with the greatest mobility needs.
Another voiced concern is the financial impact of these changes, which will target those who are already vulnerable. VAT and IPT will increase both upfront and ongoing costs for people leasing vehicles, who are often already facing much higher living costs due to living on fixed disability benefits.
There are also growing worries that this will overall affect the Motability Scheme, potentially reducing participation. This could result in longer waiting lists and lower vehicle turnovers, which in turn could reduce user choice, limit vehicle availability, and make it harder for disabled people to access the mobility support they rely on.
Despite the media picking up these concerns and increasing public scrutiny of the changes, the government so far is standing by their decision, stating it will maintain the new rules.
Clear Motability guidance from experts
These newly announced changes can feel intimidating, but we are here to help. As experts working in this industry for many decades, we ensure our whole team is up to date on any government changes to lease schemes and what they could mean for our customers. If you’re concerned or have any questions at all about the changes announced in the 2025 budget, please don’t hesitate to reach out, and we’ll do our best to help answer any queries you may have.