Motability scheme changes 2026: what happened on 1 July
The Motability scheme changes 2026 brought in on 1 July are its biggest shake-up in years, and they are anything but subtle. From that date, new leases lost the long-standing VAT zero-rating on Advance Payments, so the standard 20% VAT now applies to any upfront sum a customer pays. Insurance Premium Tax at 12% landed on scheme insurance at the same time. And the price list has been culled — Alfa Romeo, Audi, BMW, Lexus and Mercedes-Benz are reported to have been removed entirely, with coupés and convertibles from other brands withdrawn alongside them.
These are government-driven changes, not an internal reshuffle, and they matter because the scheme is relied on by hundreds of thousands of disabled drivers. When the tax treatment and the choice of cars shift at once, it changes what people can actually afford to drive.
One piece of good news belongs at the top. If you signed your lease before 1 July 2026, nothing changes for you. Existing agreements run to the end of their term on the old rules.
The tax changes, in plain numbers
Two taxes arrived on the same day. The first is the removal of the VAT zero-rating on Advance Payments — the upfront amount many customers pay to reach a better-equipped or larger car. New leases now carry 20% VAT on that payment where previously there was none. The second is Insurance Premium Tax at 12%, now applied to the insurance bundled into scheme vehicles. IPT is the same levy that quietly inflates ordinary policies — a familiar theme from our guide to car insurance for senior citizens — but until July, Motability customers were shielded from it.
What does it mean in cash? Motability expects the average Advance Payment to rise by around £400 over a three-year lease. That is an average: customers choosing cars with chunkier Advance Payments will feel proportionally more of the VAT effect, while those in low- or no-AP cars will mostly see the insurance tax working through pricing.
The premium purge: which brands went
The second half of the story is the price list. According to dealer-group reporting from Wilsons and Vertu, Alfa Romeo, Audi, BMW, Lexus and Mercedes-Benz have been removed entirely, and coupés and convertibles from other brands are reported to have been withdrawn as well. The direction of travel is not hard to read: the scheme is being steered back towards practical, mainstream transport and away from anything that could be painted as taxpayer-subsidised luxury.
For customers, the effect is a narrower but still workable choice. The mainstream market remains well stocked with sensible hatchbacks and family SUVs, and plenty suit older or less mobile drivers — our guide to the best cars for senior drivers covers the qualities that matter, such as easy entry and good visibility.
Who escapes the changes
Two groups are protected. Wheelchair Accessible Vehicles stay exempt from both the VAT and IPT changes — a sensible carve-out, given WAV users typically have the least flexibility of anyone on the scheme. And leases signed before 1 July 2026 are unaffected for their full term, so there is no reason to panic-exit an existing agreement.
The honest assessment
The tax logic is easy enough to follow from the Treasury's side of the desk, but the burden lands on people with limited alternatives. An expected £400 rise in the average Advance Payment over three years is not ruinous, yet it is a real-terms cut in what the same budget buys, and it arrives just as the most aspirational cars leave the list. The brand cull will sting mostly in principle — the scheme still offers plenty of capable mainstream metal — but choice is part of dignity, and there is now less of it. The WAV exemption and the protection of existing leases are well-judged. The rest is a straightforward cost increase, and it is fair to call it that. As ever, this is general information rather than benefits or legal advice, and individual circumstances vary.
The questions buyers actually ask
Does my current Motability lease get more expensive from July 2026? No. Leases signed before 1 July 2026 are unaffected for their full term. The new VAT and IPT treatment applies to new leases only, so your payments run unchanged until your agreement ends.
Are Wheelchair Accessible Vehicles caught by the new taxes? No. WAVs stay exempt from both the VAT change on Advance Payments and the 12% Insurance Premium Tax, so WAV customers should see no tax-driven increase from these measures.
Can I still get an Audi or BMW through Motability? Not on a new application, per dealer reporting. Alfa Romeo, Audi, BMW, Lexus and Mercedes-Benz were removed entirely, and coupés and convertibles from other brands have reportedly been withdrawn too.
Key takeaways
- From 1 July 2026, new Motability leases pay 20% VAT on Advance Payments after the zero-rating was removed.
- Insurance Premium Tax at 12% now applies to insurance on scheme vehicles.
- The average Advance Payment is expected to rise by around £400 over a three-year lease.
- Alfa Romeo, Audi, BMW, Lexus and Mercedes-Benz are reported removed from the price list, along with coupés and convertibles from other brands.
- Wheelchair Accessible Vehicles are exempt, and leases signed before 1 July 2026 run unchanged to term.
Sources & further reading
- Motability Foundation announcements and dealer-group reporting (Wilsons, Vertu), July 2026
Figures, prices and policy details were current at the last-updated date above. Automotive pricing, incentives and regulations change frequently — verify time-sensitive details with the linked primary sources. Read our editorial policy and fact-checking standards.
