Motability Scheme Changes to Take Effect Next Week for New Customers

Current leases will not be affected by the changes coming into effect on July 1, 2026.

Changes to tax exemptions for the Motability Scheme are set to come into force for people in England and Wales on July 1, 2026. The Motability Scheme supports hundreds of thousands of disabled people and families across Great Britain by enabling them to lease a car, wheelchair accessible vehicle, scooter or powered wheelchair.

Eligible claimants can exchange all or part of their enhanced mobility award from a qualifying disability benefit such as Personal Independence Payment (PIP) or Adult Disability Payment (ADP). It's important to understand nobody using the Motability Scheme gets a 'free car' and most of the 815,000 people with a current lease - including around 80,000 in Scotland - often have to make an additional up-front payment.

The Motability Scheme confirmed earlier this month changes next week will not currently affect people in Scotland or those south of the border with an existing lease. The organisation also said it will continue to provide the best possible leasing package for disabled people with a range of suitable vehicles to meet their needs.

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 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.

The upcoming changes relate to qualifying schemes, the only current example of which is the Motability scheme, which leases vehicles with preferential tax treatment to disabled people in receipt of eligible welfare benefits.

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."

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.

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 part of the payment will be disregarded in terms of valuing the supply for VAT purposes, meaning no VAT will be applied to it. However, the measure will remove the VAT zero-rate on top-up payments, made in addition to the transfer of eligible welfare benefits, for those who pay more to lease higher value vehicles.

This top-up payment will be subject to the standard rate of VAT (20%).

These changes will have no impact on the existing zero rate for vehicles designed or substantially and permanently adapted for wheelchair or stretcher users. Top-up payments for such vehicles will therefore remain zero-rated.

The guidance states: "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 left, to be eligible to join the Motability Scheme or AVE.

If you get a mobility allowance because you have a disability or condition that makes it harder to get around, 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 left 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

Guidance 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 full guide on how the scheme works can be found on the Motability website.

If you are choosing a car or wheelchair-accessible vehicle, it's important to be aware while some only use part or all of the mobility award payment, most require an advanced fee which can range from between £100 and £2,000.

At present, you will get a brand-new vehicle, and a full package which includes:

* Three drivers - you can change these whenever you like

* 60,000 mileage allowance over three years, or 100,000 for WAVWheelchair Accessible Vehicles

Full 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 swap all or part of your mobility payment to lease a vehicle.

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

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

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.

* 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

To apply to lease a vehicle using the scheme, go to the Motability website where you can:

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.