New Motability Scheme users in England and Wales will face tax changes from July 1, 2026, affecting top-up payments for higher-value vehicles. The changes, confirmed by HM Revenue and Customs (HMRC), remove the VAT zero-rate on additional payments beyond the mobility allowance and restrict the Insurance Premium Tax (IPT) exemption. Existing leases remain unaffected, and the Motability Scheme continues to support over 815,000 people, including 80,000 in Scotland.
What Is Changing?
The upcoming changes relate to qualifying schemes, currently only the Motability Scheme, which leases vehicles with preferential tax treatment to disabled people receiving eligible benefits. The policy aims to promote fairness and value for money, as stated in HMRC guidance: “The policy objective for the measure is to promote fairness and value for money for taxpayers. VAT changes restrict tax reliefs for more expensive vehicles provided under qualifying schemes, while IPT changes bring the tax treatment of qualifying schemes in line with other commercial lease providers.”
VAT Changes
Eligible benefits paid by the DWP, Ministry of Defence, Social Security Scotland, or the Department for Communities (Northern Ireland) cover the lease cost and remain VAT-free. However, from July 1, 2026, top-up payments for higher-value vehicles will be subject to the standard VAT rate of 20%. Vehicles designed or substantially adapted for wheelchair or stretcher users remain zero-rated.
Insurance Premium Tax Changes
The IPT exemption will be restricted to insurance contracts for vehicles substantially and permanently adapted for wheelchair or stretcher users, or originally designed for their use, leased through a qualifying scheme. All other vehicles will be subject to the standard IPT rate of 12%. Insurance for leases entered into before July 1, 2026, remains exempt.
Who Is Affected?
The changes apply to new leases from July 1, 2026, in England and Wales. People in Scotland and those with existing leases are not currently affected. The Motability Scheme confirmed it will continue to provide the best leasing package for disabled people.
Eligibility for the Motability Scheme
To join the Motability Scheme or Accessible Vehicles and Equipment Scheme, you must receive one of the following mobility allowances with at least 12 months remaining: Personal Independence Payment (PIP) higher rate mobility, Adult Disability Payment (ADP) enhanced rate mobility, Disability Living Allowance (DLA) higher rate mobility, Child Disability Payment higher rate mobility, Scottish Adult DLA higher rate mobility, Armed Forces Independence Payment (AFIP), or War Pensioners' Mobility Supplement (WPMS).
Guidance on the Motability website states: “You cannot apply to join the Scheme if you receive a lower rate or component of the mobility allowance or if you receive Attendance Allowance, Carer’s Allowance or Employment and Support Allowance (ESA).”
What Is Included in the Lease?
Current leases include a brand-new vehicle, insurance, servicing and maintenance, full RAC breakdown assistance, yearly tax, three drivers (changeable anytime), Kwik Fit replacement tyres, windscreen repair or replacement, 60,000-mile allowance over three years (100,000 for wheelchair-accessible vehicles), and many adaptations at no extra cost.
Most leases require an advanced payment ranging from £100 to £2,000.
How to Apply
To apply, visit the Motability website, choose a vehicle, and find a dealership. You need to present your certificate of entitlement from your decision award letter. Full details are available on GOV.UK and the Motability website.
