DWP shares Motability Scheme tax changes update as date issued | Personal Finance | Finance
Chancellor Rachel Reeves unveiled changes to tax exemptions for the Motability Scheme during last month’s Autumn Budget. The revised tax rules will incur additional costs, prompting Motability to reassess the Scheme’s operation to maintain affordability for its customers.
The Scheme pledges to continue offering the optimal leasing package for disabled people, providing a variety of suitable vehicles tailored to their needs. Existing leases will remain unaffected by these changes , reports the Daily Record.
However, during a Department for Work and Pensions (DWP) session in Parliament on Monday, Minister for Social Security and Disability, Sir Stephen Timms, confirmed that «some tax reliefs will be removed in July».
Sir Stephen said: «Motability is an important scheme that does an important job. Some tax reliefs will be removed in July. Existing leases will not be affected, and neither will wheelchair-adapted vehicles.»
He said: «There will still be vehicles, with no up-front payment, that are affordable solely through the mobility component of personal independence payment, so the scheme will continue to do a great job but will give better value for money for taxpayers.»
Sir Stephen provided further clarification on the changes in a written statement to Labour MP Neil Duncan-Jordan on Monday, responding to questions about what evaluation had been conducted regarding the «potential impact of applying Insurance Premium Tax to certain vehicles under the Motability Scheme from July 1, 2026 to levels of poverty and financial hardship among people with disabilities».
The DWP Minister said: «The package of reforms to the Motability Scheme announced as part of the Budget will ensure the Scheme delivers fairness for the taxpayer, while continuing to support disabled people.
«The Scheme will continue to offer a choice of affordable vehicles to meet a range of accessibility needs and offer vehicles which require no advance payment, meaning that people will be able to access a suitable vehicle using only their qualifying disability benefit. Insurance Premium Tax (IPT) will apply to leases at the standard rate, bringing tax treatment in line with commercial leasing firms.»
He added: «Existing leases and vehicles substantially designed for, or adapted for, wheelchair or stretcher users will continue to benefit from VAT reliefs on advance payments and the IPT exemption, in recognition of the additional costs associated with these vehicles.
«Motability Foundation, the independent charity with responsibility for overseeing the Scheme, will continue to offer means-tested grants to support eligible people who would otherwise struggle to afford the advance payment.»
Motability Operations, the organisation managing the Scheme, will start discussions with customers about the proposed alterations in Spring 2026.
The Motability Scheme allows people to swap all or a portion of their enhanced mobility award from a qualifying disability benefit such as Personal Independence Payment (PIP) or Adult Disability Payment (ADP) – for a lease on a car, powered wheelchair or mobility scooter.
No one using the Motability Scheme receives a ‘free car’ and most of the 815,000 people with a current lease often have to make an additional up-front payment.
The Motability Foundation will persist in offering grants to assist those with the most severe needs to access the Scheme, having awarded £59.3 million in 2024/25 to help over 10,000 customers benefit from essential mobility solutions.
Nigel Fletcher, Chief Executive of the Motability Foundation, said: «We understand the challenges disabled people face in accessing reliable and accessible transport, and how important a Motability car is to Scheme customers. The changes to tax reliefs imposed on the Scheme in today’s Budget statement mean the Scheme will need to evolve.
«We are working hard to minimise price increases for customers and are taking steps to assess the impact of potential changes to the leasing package. Our focus remains firmly on protecting the Scheme for those who need it most.»
Andrew Miller, Chief Executive of Motability Operations, stated: «An evolved Motability Scheme will continue to put the disabled people we serve at the heart of everything we do. Changes to evolve the Scheme will involve understanding what matters most to disabled people, working closely with Motability Foundation.»
Current scheme members can find comprehensive details of the proposed changes and responses to frequently asked questions on the Motability Scheme website.
