Chancellor keeps classic cars exempt from Vehicle Excise Duty

BUDGET 2025: Historic and Classic Vehicles Alliance reports UK classic car industry worth over £7.3bn and contributes £3bn in direct taxes annually

The UK chancellor Rachel Reeves has ended the uncertainty around classic car taxation after months of speculation. The 2025 Autumn Budget confirmed that classic cars over 40 years old will continue to be exempt from Vehicle Excise Duty (VED), a decision welcomed by owners and industry alike.

“Along with the announcement that a freeze on fuel duty will continue, this is very welcome news for classic car owners and for an industry that contributes over £3bn in direct taxes to the UK economy every year,” says Mark Roper, managing director of classic car insurance specialist Hagerty UK. 

“The introduction of pay-per-mile charging for electric vehicles and plug-in hybrid electric vehicles from 2028 was widely anticipated as the government looks to recoup lost fuel duties, but in an age of electrification, classic cars are often looked at unfairly. However, these vehicles represent the ultimate in recycled and sustainable motoring and that’s before you consider the UK classic car industry is worth £7.3bn, contributes £3bn annually to the economy, and has over 100,000 jobs dependent on the sector.”

Currently there are 1.9 million classic cars and motorcycles in the UK, over 350,000 of which are more than 40 years old and eligible for VED exemption. Typically, a car can be considered a classic when it is 25 years old or more, including models from the 80s, 90s and even the noughties, far more modern than many might think.

“Preserving the exemption aligns with the government’s wider environmental goals through maintaining vehicles whose lifecycle carbon impact is negligible compared to the manufacture of new vehicles,” says Dale Keller, chief executive of the Historic & Classic Vehicles Alliance (HCVA).

“Research suggests classic vehicles are used sparingly as cherished items of industrial and design heritage. The tax contribution of the vehicles was made decades ago and applying the VED would be disproportionate to their use, which was the key factor in the exemption being applied in the first place.”

Reeves also confirmed that classic cars will continue to be exempt from the annual MOT vehicle test, but the chancellor said that this would remain under review for the next few years.

Not all are in favour of the lack of MOT, warns Roper: “Many organisations would like to see an annual roadworthy test for older vehicles, and many classic vehicle owners choose to continue with a yearly MOT test despite exemption, as being assured of their continued roadworthiness is something to be welcomed.“

The Historic And Classic Vehicles Alliance was launched in May 2021 with a mission to protect and promote the sector and secure its long-term future. It campaigns on behalf of individuals and companies in the classic vehicle world, including specialist restorers, dealers and parts suppliers.