The Department for Work and Pensions has provided an update on changes to the Motability Scheme coming this summer, including the removal of luxury vehicles and new tax rules from 1 July 2026
The Department for Work and Pensions ( DWP ) has confirmed Motability Operations will continue to “prioritise customer needs, ensuring vehicles remain affordable and meet a range of accessibility needs”. Minister for Social Security and Disability Sir Stephen Timms added that this includes dropped floors and hand controls while also offering vehicles which require no advance payment.
His remarks followed a query from Labour MP Neil Duncan-Jordan who asked ‘what assessment has been made of the potential impact of the removal of so-called luxury vehicles from the MotabilityScheme which offer dropped floors and hand control’.
In a written reply, Sir Stephen stated: “Motability’s decision to remove luxury vehicles from the Scheme will help ensure that tax reliefs are not subsidising luxury vehicle leases and services that non-scheme users could not afford, so that the Scheme focuses on its core aim and is more in line with the retail leasing offer.”
Sir Stephen went on: “Motability Operations will continue to prioritise customer needs, ensuring vehicles remain affordable, meet a range of accessibility needs – including dropped floors and hand controls – 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.
“Support for specialist adaptations will remain at the heart of the Scheme and the Scheme will continue to cover the cost of standard adaptations.
“Motability Foundation will continue to offer means-tested grants to those most in need of financial help. These grants support eligible people who would otherwise struggle to afford the advance payment or adaptations for a vehicle, or a wheelchair accessible vehicle (WAV) through the Motability Scheme.”
The UK Government confirmed in November that modifications to tax exemptions for the Motability Scheme will take effect from 1 July 2026, reports the Daily Record.
The Motability Scheme assists numerous disabled individuals and families by allowing them to lease a car, wheelchair accessible vehicle, scooter or powered wheelchair.
Qualifying claimants can exchange all or part of their enhanced mobility award from an eligible disability benefit such as Personal Independence Payment ( PIP ) or Adult Disability Payment (ADP).
It’s crucial to recognise that nobody using the Motability Scheme receives a ‘free car’ and the majority of the 815,000 people with a current lease – including approximately 80,000 in Scotland – frequently have to make an additional upfront payment.
Motability Foundation, the independent charity responsible for overseeing the Scheme, will continue to provide means-tested grants to assist eligible individuals who would otherwise find it difficult to afford specialist adaptations for a vehicle leased through the Scheme. Online guidance from HM Revenue and Customs (HMRC) sets out details of the proposed changes to tax relief, who will be affected and potential impact of the reforms.
Below is an overview of the changes, full details can be found on GOV.UK.
What is changing?
The proposed alterations concern qualifying schemes, with the sole current example being the Motability scheme, which provides vehicle leases with favourable tax treatment to disabled individuals receiving eligible welfare benefits.
Reasons for change
The guidance states: “The policy objective for the measure is to promote fairness and value for money for taxpayers. VAT changes restrict tax reliefs for more expensive vehicles provided under qualifying schemes, while IPT changes bring the tax treatment of qualifying schemes in line with other commercial lease providers.”
Who is likely to be affected
From July 1, 2026 onwards, qualifying schemes which lease vehicles to eligible disabled people will be impacted, the only current example of which is the Motability scheme, as well as businesses which provide insurance to qualifying schemes.
VAT
Eligible benefits paid to claimants by the DWP, the Ministry of Defence, Social Security Scotland, or the Department for Communities (Northern Ireland) can be used to cover the cost of leases. This portion of the payment will be disregarded when assessing the supply for VAT purposes, meaning no VAT will be charged on it.
Nevertheless, the measure will eliminate the VAT zero-rate on additional payments, made on top of the transfer of qualifying welfare benefits, for those who pay extra to lease more expensive vehicles.
This additional payment will be liable for the standard rate of VAT (20%).
These alterations will have no effect on the current zero rate for vehicles designed or substantially and permanently modified for wheelchair or stretcher users. Additional payments for such vehicles will therefore continue to be zero-rated.
Insurance Premium Tax
The guidance explains: “This measure restricts the Insurance Premium Tax (IPT) exemption for insurance on vehicles leased through qualifying motor vehicle leasing schemes.
“Once changes take effect, the exemption will apply only to insurance contracts relating to vehicles that are substantially and permanently adapted for wheelchair or stretcher users, or originally designed for their use, where leased through a qualifying scheme.
“All other vehicles provided through such schemes will be subject to IPT at the standard rate of 12 per cent. The liability of insurance relating to all vehicles provided through leases entered into prior to 1 July 2026 will remain exempt.”
Eligibility for the Motability Scheme or Accessible Vehicles and Equipment Scheme
You need to receive one of these qualifying mobility allowances, with at least 12 months remaining, to be eligible to join the Motability Scheme or AVE.
If you receive a mobility allowance due to having a disability or condition that makes getting around more difficult, you might be able to use it to lease a vehicle through the Motability Scheme.
To apply, you need to receive one of the qualifying mobility allowances and have at least 12 months remaining on your award:
- PIP: Higher rate mobility part of Personal Independence Payment
- ADP: Enhanced rate mobility part of Adult Disability Payment
- DLA: Higher rate mobility part of Disability Living Allowance
- CDP: Higher rate mobility component of Child Disability Payment
- Scottish Adult DLA: Higher rate mobility component of Scottish Adult Disability Living Allowance
- AFIP: Armed Forces Independence Payment
- WPMS: War Pensioners’ Mobility Supplement
Information on the Motability website states: “You cannot apply to join the Scheme if you receive a lower rate or component of the mobility allowance or if you receive Attendance Allowance, Carer’s Allowance or Employment and Support Allowance (ESA).”
A comprehensive guide on how the scheme operates can be found on the Motability website.
If you are selecting a car or wheelchair-accessible vehicle, it’s important to be aware whilst some only use part or all of the mobility award payment, most require an advance payment which can range from between £100 and £2,000.
What else is included in the lease?
Currently, you will receive a brand-new vehicle, and a complete package which includes:
- Insurance
- Servicing and maintenance
- Full RAC breakdown assistance
- Yearly tax
- Three drivers – you can change these whenever you like
- Kwik Fit replacement tyres
- Windscreen repair or replacement
- 60,000 mileage allowance over three years, or 100,000 for WAVWheelchair Accessible Vehicles
- Many adaptations at no extra cost
Complete details on the Motability Scheme can be found on the website here.
Below is a quick guide on the Accessible Vehicles and Equipment Scheme and how to exchange all or part of your mobility payment to lease a vehicle.
How the new scheme operates
Social Security Scotland guidelines state: “When you lease a vehicle through the scheme, it will be with our authorised provider, Motability Operations Ltd.”
Social Security Scotland will help you pay the lease using all or part of either:
- The higher rate of the mobility component of Child Disability Payment
- The enhanced rate of the mobility component of Adult Disability Payment
Applying to lease a vehicle for yourself
You can apply to lease a vehicle yourself if you meet all of the following:
- You get the higher rate of the mobility component of Child Disability Payment or the enhanced rate of the mobility component of Adult Disability Payment
- You are 16 or over
- You are able to manage your own payments
Applying to lease a vehicle on someone’s behalf
Social Security Scotland also advises you may be able to apply to lease a vehicle on behalf of someone else.
This might be an option if you’re either:
- A parent or guardian of a child receiving the higher rate of the mobility component of Child Disability Payment
- An appointee for someone who is receiving the higher rate of the mobility component of Child Disability Payment or enhanced rate of the mobility component of Adult Disability Payment
How to apply
To apply to lease a vehicle using the scheme, go to the Motability website where you can:
- Choose a vehicle
- Find a dealership
When visiting a dealership, you need to present your certificate of entitlement. Social Security Scotland states you will find this included in your decision award letter.
Find out more about Adult Disability Payment and leasing an accessible vehicle on the mygov.scot website here.
