Rachel Reeves is reportedly considering closing a decade-old loophole that provides exemption from road tax for classic cars in what could be yet another 'tax grab' on drivers. 

Shadow transport secretary Richard Holden says he is 'concerned' that the Chancellor could scrap vehicle excise duty (VED) immunity for 40-year-old motors in next month's Budget.

With Reeves seeking to raise taxes to plug a fiscal hole in Treasury incomings, the removal of the 40-year 'historic vehicle' exemption rule - which was introduced under the Conservative Party in 2015 - would see potentially 340,000 older vehicle owners facing annual road tax bills once again.

The rule means owners of cars over the age of 40 from the start of each financial year - currently those registered before 1 April 1985 - are not required to pay VED. Ditching this stipulation could raise in the region of £107million a year for Treasury coffers, the Daily Mail has estimated. 

If announced during Reeves' 26 November speech, motorists will undoubtedly view it as yet another instance of Labour waging war on drivers.

In April, the Chancellor rung in VED changes that force electric car drivers to pay road tax for the first time. She also doubled 'showroom' tax rates on new petrol and diesel motors to as much as £5,490 for the most CO2 polluting models.

Speaking to Classic Car Weekly, Mr Holden said: 'One of my big concerns is what's going to happen with the 40-year-rule and things like that with the Budget coming up.

'And I think my priority at the moment is to make sure that we don't end up seeing a tax grab on the sector at the Budget.'

Closing the loophole would see tens of thousands of keepers of classic Minis, MGBs and other British motors produced before 1985 all forced to pay VED. 

Holden told the classic car magazine that it has become his 'number one priority' to protect the classic car sector, though warns that Reeves is 'looking right across transport' to generate more Treasury revenue next month.

And the Labour Party already has a track record for scrapping rolling vehicle tax exemptions for motors of a particular vintage.

In 1997, during Gordon Brown's first Budget statement, he announced the termination of road tax immunity for classic cars built after 1 January 1973.

The current exemption was reintroduced on a 40-year rolling basis by the Tory Party and George Osborne in 2015. 

HM Revenue and Customs at the time said the measure was 'not expected to have any significant economic impacts'.

Three years later, exemption from the MOT test was also introduced for 40-year-old cars, which means that owners of cars classifies as historic vehicles no longer need to have their cherished motors pass the annual roadworthiness test.

This is because the hundreds of thousands of classic car owners are largely considered enthusiasts who fork out copious funds to keep their vehicles on the road. Far less electronics and simpler maintenance of older vehicles is another reason for why cars over 40 years old are deemed to no longer require an MOT.

How much could a tax on classic owners rake in? 

At the end of 2023, there were 338,697 classic cars over the age of 40 registered in Britain, according to the Driver and Vehicle Licencing Agency.

However, 41,217 of these were declared SORN (Statutory Off Road Notification). Cars of any age declared SORN are not subject to VED, meaning 297,480 owners would be stung by the Chancellor's fresh tax grab.

Under existing VED rates, the oldest cars to be taxed are those registered between 1 April 1985 and 1 March 2001.

Models registered in this 16-year window with smaller engines below 1.5-litres incur a £220 annual rate, while those in excess of 1,500cc face annual costs of £360.

Based on the latter figure and DVLA records suggesting there are around 297,500 40-year-old classics on the road currently, this would trigger a potential increase in VED earnings in the region of £107million.

Mark Roper, managing director of classic car insurer Hagerty UK, told the Daily Mail that scrapping the 40-year VED exemption rule would be 'a blow'.

'Classic car owners are often targeted, as they are seen as being polluting,' he said. 

'The reality is the opposite, as most classic cars are used sparingly, for fun and enjoyment and nowadays all run on modern, clean fuels.

'To consider taking away the 40-year tax exemption will be another blow to an industry which provides almost £3billion in UK taxes, and it's time we looked more favourably on classic car owners, and the industry as a whole.'

He added: 'Hagerty is committed to the preservation of classic car culture, and works closely with groups such as the Historic & Classic Vehicle Alliance (HCVA), an organisation dedicated to supporting the classic car industry, and we have our own Hagerty Drivers Foundation which educates a new generation in the benefits of classic cars.

'I urge the government to reconsider removal of the exemption and allow owners and enthusiasts to enjoy the wonderful cars we all enjoy seeing on the road.'

Commenting on the potential tax raid on older vehicles, an HM Treasury spokesperson said: 'The Chancellor makes tax policy decisions at fiscal events. 

'We do not comment on speculation around future changes to tax policy.'