What will the VRT changes mean?

Everybody is talking about the changes in VehicleRegistration Tax (VRT) that are coming in July, but there seems to be significant confusion about whether car prices will rise or fall. We take a look at the changes.

The changes in the VRT rates for new cars and cars imported into Ireland from 1 July will mean that cars with lower levels of exhaust emissions will pay a lower rate of VRT and also a lower rate of annual road tax. The changes were announced in the Budget in December and were designed to encourage the use of cars with cleaner engine systems.

So, if you’re in the market for a new car now or over the next few months, make sure to check out the car’s CO2 rating – it’s equally as important as the economy figures and interlinked in terms of future running costs.

Diesel cars achieve lower levels of emissions than many equivalent petrol cars. The sales results for January and February of this year already indicate that the percentage of diesel sales has risen from under 20% of the market to over 30%. This trend will continue as we near the July deadline.

What does it all mean?

The new VRT system will mean a lower rate of VRT for cars that have lower carbon dioxide (CO2) exhaust levels. Cars that pollute more will incur a higher level of taxation. This means a move away from the system where VRT is based solely on the size of the vehicle’s engine.

From July, there will be a seven-band CO2 emissions system, from Band A to G. The system will be underpinned by a new CO2 Emissions Labelling System for cars, similar to the energy efficiency labels for white goods such as fridges and washing machines.

All cars sold after 1 July next will be required to have an emissions band clearly marked. The new rates will range from 14% to 36%.

Cleaner cars will be cheaper

The new VRT rules offer drivers the option of making informed decisions in an effort to get lower car prices by opting for cars that give a lower VRT rate. Prices of bigger cars and some 4x4s with high emissions levels will definitely rise.

The Government will continue to give incentives for hybrid electric and flexible-fuel cars. After 1 July, there will be a further top-up relief up to €2,500 on the VRT payable on such cars. Fully electric cars and electric mopeds will be exempt from VRT from 1 January 2008.

The changes in the VRT system should mean lower prices for some cars, almost all of which are diesel-engine models. Most petrol-engine cars will have a higher level of VRT than in the past, pushing up prices. Bigger diesel-engine SUVs and 4x4s that do not have lower CO2 emissions engines will also take a price increase, as was flagged in leaks prior to the Budget.

Many larger cars and 4x4s generate CO2 exhaust emissions levels that are over the 226g/km top rating. That means that their VRT rating will rise from the previous top rating of 30% to either 32% or the new top rating of 36%. Some large estate cars such as the Volvo V70 2.5T with petrol power and a CO2 rating of 222g/km will experience a slight rise in prices as a result, while the top end V70 3.2-litre engine model will get the full 36% rate.

Large 4x4s with powerful engines that emit high levels of CO2 will also be penalised. The figures from the Department of Finance indicate that many of them will or should increase in prices due to a higher VRT rate. Land Rover has already confirmed that it expects to lift prices across the range from Freelander to Range Rover due to the new VRT rates.

How is the CO2 rating calculated?

The Department of Finance says that the CO2 emissions rating for each new car being registered in Ireland will be determined based on the emissions information contained in the model’s Certificate of Conformity. This is a document which has been required under European Law since 2001. Sales brochures normally contain a CO2 emissions figure in the section under economy based on this information. There are various opinions on whether this is accurate or not, but it is a common system and the only one that can be used currently.

For used-car imports, the CO2 rating will have to be declared on form VRT4 (Declaration for registration of a used vehicle) by the person registering the vehicle. The declaration will be required to be supported by documentary evidence of the CO2 rating. This could be provided in a Certificate of Conformity, a previous registration certificate or a certificate from the manufacturer or a main distributor (provided in each case the CO2 rating is included). Alternatively, a certificate from an organisation approved by the Revenue Commissioners to provide such certificates could be used as documentary evidence of the emissions levels.

Where a certificate or a measurement is not available or fails to satisfy the Revenue Commissioners, the VRT charged could be set at the maximum rate allowable. Such a VRT rating would be open to appeal through the VRT appeals system.

Motor tax rates increase

The rates of motor tax rose by 9.5% for cars below 2.5 litres and by 11% for larger cars from 1 February 2008. The bigger impact will come in July when motor tax bands on all new cars sold from then on or used cars registered for the first time in Ireland will have a new annual motor tax charge. Existing cars will continue to be taxed on the current basis of engine size. This means that your car tax will be at the raised February rate – not the new CO2 rate – until you change to a new car sometime after July.

There will be seven bands in total, ranging from €100 a year for the greenest cars to €2,000 for cars with the highest emissions ratings. It will result in savings of more than €300 for motorists who chose the lowest emissions vehicles.

A key part of the motor tax and VRT initiatives will be a new mandatory labelling system for cars based on CO2 emission levels. This will be accompanied by an active public information campaign which will promote the purchase of fuel-efficient cars. You can expect to see this on all new cars in advance of the July VRT changes.

Table 1: VRT rates and motor tax charges from 1 July 2008
  CO2 g/km VRT rate Motor tax
Band A 0-120 14% €100
Band B 121-140 16% €150
Band C 141-155 20% €290
Band D 156-170 24% €430
Band E 171-190 28% €600
Band F 191-225 32% €1,000
Band G 226 plus 36% €2,000


Table 2: Likely drop in selected car prices due to VRT changes
Car model CO2 rating VRT Change % Change
Peugeot 107 1.0 petrol 109g/km – €465 – 9.9%
Volkswagen Polo 1.4 TDI 70 119g/km – €1,275 – 7.7%
Ford Focus 1.6 TDCi 90 124g/km – €1,505 – 9.9%
Renault Mégane 1.5 dCi 106 120g/km – €2,278 – 10.7%
Audi A4 1.9 TDI 154g/km – €2,330 – 7.9%
Toyota Avensis 2.2 D4D 156g/km – €3,209 – 7.9%
Honda CR-V 2.2 CTDi 173g/km – €989 – 2.8%


Table 3: Likely rise in selected car prices due to VRT changes
Car model CO2 rating VRT Change % Change
Ford Focus 1.4 petrol 157g/km +€370 +2.0%
Toyota Avensis 1.8 petrol 172g/km +€960 +4.2%
Saab 9-5 2.0t petrol 204g/km +€807 +2.9%
Volvo V70 2.5T petrol 222g/km +€807 +2.9%