The Finance Act 2026 received Royal Assent on 18 March 2026. The Act implements the fiscal measures announced at the Autumn Budget 2025 and, amongst other things, introduces important changes for disabled people and their insurers. In particular, it restricts the Insurance Premium Tax (IPT) exemption available in connection with the Motability Scheme which is the UK’s largest vehicle-leasing programme for disabled people.
Under the previous rules, insurance contracts relating to vehicles leased through the Motability Scheme were fully exempt from IPT under Item 3 of Schedule 7A to the Finance Act 1994. Section 81of the Finance Act 2026 substitutes Item 3 with new measures, narrowing the exemption. As a result, the IPT exemption will only apply where the lease remains VAT-exempt; where VAT is chargeable, IPT will apply to the insurance at the standard rate of 12%.
The changes apply to new lease contracts entering on or after 1 July 2026; existing agreements remaining unaffected. Vehicles substantially and permanently adapted for wheelchair or stretcher users will continue to qualify for both VAT and IPT exemption.
