Your local car dealers will pay the VRT tax when you complete the deal for your new car and then you have to arrange your annual road tax with your local authority. The rate of road tax will also be changing from July 1st.

Like the VRT system the road tax rates will be linked to the CO2 emissions levels from your new car. Higher CO2 producing cars, meaning those with more polluting emissions and also by implication poorer fuel economy, will be charged more.

Currently there are 23 different road tax rate bands, all based on the engine cubic capacity (cc) of the car. Smaller engine cars pay a lower rate and the top rate of annual motor tax is €1,491 for cars over 3 litre (3,000cc) in engine size.

Under the new system from July 1st there will be seven bands and they are identical to the seven bands used to decide on the car's VRT payment. The lower the level of CO2 emissions from your new car will mean a lower the rate of Annual Road Tax.

This means that you could have a large engine car, that is very fuel efficient and produces a lower CO2 emission level than a smaller car, so will have a lower annual road tax rate from July. It also means that for some modest sized cars, typically with petrol engines the road tax rates will increase from July.

New Road Tax Rates (effective for vehicles first registered from 1st July 2008)

Mr John Gormley, T.D., Minister for the Environment, Heritage and Local Government, clarified some issues with regard to motor taxation in a statement issued in March of this year.

Minister Gormley stated that all new cars registered from 1 July 2008 will have their motor tax rate based on the CO2 emissions level. The new CO2 based system will not apply to the import of used cars registered abroad prior to 2008. They will be taxed at the old/current rate.

New cars registered between 1 January 2008 and 30 June 2008 will initially have their motor tax charged on the basis of the existing engine size (c.c.) system. However, a low CO2 emitting new car registered between 1 January 2008 and 30 June 2008 will have its motor tax switched to the lower CO2 based motor tax rate on first renewal of motor tax post 1 July 2008, when the new CO2 based system commences.

New cars which are registered in the first 6 months of 2008 whose tax would be more under the new CO2 based system will continue to pay motor tax on the basis of engine size (c.c.).

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