Reports suggest Rachel Reeves might axe the VED exemption for classic cars in the next budget, but what would that mean for owners and the industry?

For decades, classic car owners in the UK have enjoyed certain privileges that recognise the cultural and historical importance of preserving older vehicles. 

Among them, the exemption from Vehicle Excise Duty (VED) - commonly known as road tax - has been one of the most significant. Cars over 40 years old have been able to register as ‘historic’ and enjoy free road tax, as well as exemption from mandatory MOT testing and Ultra Low Emission Zone (ULEZ) charges.

However, recent reports suggest the government is considering removing this VED exemption as part of a broader review of motoring taxes. The proposal, reportedly under discussion ahead of the next Budget, has caused understandable concern among enthusiasts, collectors and the wider classic car industry.

So, what exactly could this mean for owners - and for the future of Britain’s classic car industry?

First things first. The VED exemption was introduced in 1994 to recognise that classic vehicles - then defined as those built before 1 January 1973 - were not everyday transport but cultural artefacts. The exemption was designed to protect the UK’s automotive heritage and the small businesses that supported it.

In 2014, the government changed the system to a rolling 40-year threshold, meaning that each April, another year’s worth of vehicles would qualify for free historic vehicle status. Today, this covers all cars first registered before 1 January 1985.

According to the Department for Transport, there are around 1.6 million vehicles over 30 years old currently registered in the UK, with roughly 370,000 holding historic tax class status. These vehicles account for just 0.22% of total UK transport emissions - a tiny proportion compared with the wider road fleet, but they play a disproportionately large role in preserving British motoring heritage.

Why the change, and why now?

The government is said to be exploring ways to make the tax system ‘fairer’ and ‘future-proof’ in light of declining revenue from fuel duty and road tax as the nation transitions to electric vehicles. Some ministers reportedly view the VED exemption as an anomaly, arguing that all vehicles using the road network should contribute something to its upkeep.

Yet critics point out that classic cars already make an economic contribution far beyond their use on the road. The UK’s historic vehicle industry is estimated to be worth over £18 billion annually and supports around 113,000 skilled jobs, from restorers and engineers to event organisers and tourism specialists. For many rural and small businesses, the classic sector is a vital part of the local economy.

If the exemption were scrapped, all vehicles - regardless of age - would have to pay an annual VED fee. For many classics, this would likely mean a standard flat rate of around £200–£300 per year depending on engine size and emissions.

For the average owner with one or two vehicles, this might not seem devastating. However, for collectors, small museums, or those preserving vehicles on limited budgets, it could represent a significant financial burden. Some enthusiasts fear it might discourage people from keeping older cars on the road, particularly those in need of restoration or low-value vehicles that currently cost little to own and maintain.

Others note that the administrative change could blur the distinction between classics and daily drivers, undermining the sense that older vehicles are part of Britain’s living history rather than just older forms of transport.

Could MOT and ULEZ exemptions be next?

The VED review has also sparked concern that other historic vehicle exemptions could be reconsidered. Cars over 40 years old are currently MOT exempt, although many owners continue to have annual safety checks voluntarily.

In addition, ULEZ exemptions apply to historic vehicles - a vital protection given that most classics would otherwise fall foul of the stringent emissions limits in cities such as London and Birmingham. If these exemptions were removed alongside VED changes, many urban owners could face daily driving charges of £12.50 or more, effectively restricting their use to private land and events.

At present, there is no official indication that MOT or ULEZ exemptions will be altered, but campaign groups such as the Federation of British Historic Vehicle Clubs (FBHVC) are watching developments closely and lobbying for continued support.

The classic car movement has long argued that these vehicles are “moving museums”, offering tangible connections to history and engineering excellence. Unlike modern cars, most classics are driven sparingly - the average historic vehicle covers just 1,200 miles per year, compared with over 6,000 for the average modern car.

Their environmental impact, while often overstated, is minimal. A recent report by loop – an automotive PR and communications agency - found that all UK classics combined emit the same amount of CO₂ annually as drinking three takeaway coffees a day per person. In that light, the VED exemption is less about cost and more about recognising cultural and historical value.

For many enthusiasts, owning a classic is not about profit or convenience but preservation - keeping craftsmanship, mechanical skills, and a slice of motoring history alive for future generations.

What should owners do now? 

Until any official announcement is made, the 40-year rule remains unchanged. Owners of vehicles registered before 1 January 1985 can continue to apply for historic tax class at the Post Office or via the DVLA. It’s important to ensure your car’s registration is up to date and correctly classified, as this also affects MOT and ULEZ exemptions.

If changes are proposed, there will likely be a consultation period. Industry groups, clubs, and insurers will have the opportunity to represent the interests of owners, and it’s vital that enthusiasts engage constructively in that process.

Ultimately, the debate over the VED exemption highlights the delicate balance between sustainability, fairness, and heritage. While the government’s desire to simplify taxation is understandable, classic cars occupy a unique space in the UK’s cultural landscape - one that deserves recognition and protection.