Budget 2026 – Should I buy an electric car before April 2027?

First year allowances are set to end at the end of the 2026/27 tax year, creating a cliff edge.

Capital Allowances

This time last year Rachel Reeves announced an extension, as has been the case previously, of the first year allowances for electric vehicles so that 100% tax relief continues to apply. However, John Healey did not follow suit and no extension was announced, therefore first year allowances are set to end at the end of the 2026/27 tax year (31 March for corporation tax and 5 April for income tax).

As such a cliff edge has been created, since there is 100% tax relief until that point and thereafter those cars will be main pool items only eligible for writing down allowances, a tax relief that was also reduced in the budget from 14% (previously also 18%) to only 12% from April 2027.

Suddenly it creates the question, should you buy an electric car now? Which is exactly what the Government want you to do – spend money in a struggling economy on a large ticket item which raises their tax take, accelerates tax take and ticks the box for meeting carbon zero targets! Win, win for them.

If you were planning an electric car purchase then it likely makes sense to buy when you can get instant tax relief on the whole of the cost, but it is always best to check the numbers to identify the actual saving before rushing out to spend for a possible tax saving.

Benefits in kind

The rates for electric vehicles continue to rise as expected as they become more popular and the Government no longer needs to provide as much incentive for people to convert. Benefit in kind rates are at 4% for 2026/27 tax year and will increase to 10% for the 2030/31 tax year. Although increased, these rates are still significantly less than the fossil fuel alternative or even a hybrid vehicle.

Mileage Rates

For electric vehicles the 3p pay per mile vehicle excise duty will go ahead as planned and start on 1 April 2028 rising with inflation from 2029/30.

Earlier in the year we heard that mileage rates for cars were being increased temporarily from the historical 45p per mile to 55p per mile and the Budget made that change permanent and has retrospective effect from April 2026. The Budget also brought an increase for the rate where more than 10,000 miles are being travelled to 35p per mile from the historic 25p per mile. 45p and 25p were originally brought in for tax year 2011/12 and have therefore had a long run despite fuel and duty increases in the last 15 years.

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