Prepare for the Impact of Labour’s Reforms on Private School Fees

It is often said that as a parent you should provide the very best education you can afford, as a child’s future success can be heavily impacted by the quality of education that they receive. Many families spend years saving to afford a private education for their children, making many sacrifices along the way. *

However, with the recent change in Government, the landscape of private school fees has dramatically shifted.

On 29 July, in her first speech as Chancellor, Rachel Reeves outlined Labour’s plans to ‘rebuild Britain’, including their intention to remove the VAT exempt status of private school fees. From 1 January 2025, private school fees will be subject to 20% VAT, which could have far-reaching implications for families already stretching their budgets to cover these costs.

Arrange your free initial consultation

Private day schooling currently costs an average of £15,324 per year, whilst boarding schools cost around £39,006, with quite a wide range up to £55,000 per annum. Add in annual increases in costs of about 5% on average can quickly make this unaffordable for many families. 

Based on an average annual cost of £15,000, the introduction of VAT on private school fees will increase costs by an average around £3,000 a year. This poses a significant financial challenge, particularly for middle-income families who often make considerable sacrifices to put their children through private education. Contrary to popular belief, not all parents of children attending private schools are very wealthy; in fact, many are cutting back on holidays, remortgaging their homes and accepting help from grandparents to afford their children’s education. **

According to the Institute for Fiscal Studies (IFS), around 6-7% of all students in the UK attend private schools, and since 2010 the gap in funding between independent vs state schools has more than doubled in favour of the private sector. Labour argues that their policy will help fund 6,500 new teachers in the state sector, aiming to improve the struggling state system. However, if families are unable to meet the increased costs of private education, there is a risk that more children may enter the state system. Each additional pupil costs taxpayers an average of £8,000 annually, which could strain the Treasury’s ability to fund improved state education outcomes.  

Advanced Payment Plans – Something to Consider with Caution

In response to these changes, some private schools have offered advanced payment plans, providing discounts for paying upfront. However, the Government has introduced anti-forestalling provisions, meaning any advance payments made on or after 29 July 2024 for fees relating to a school term after 1 January 2025, will still be subject to 20% VAT.

How some schools are preparing

Some schools have already taken measures in response to the announcement. For example, to keep education accessible for as many families as possible, the Grammar School at Leeds has revealed their plans to use internal reserves to offset the impact of VAT for the upcoming academic year, but this can only smooth the impact of any cost increases. Other schools are working hard to mitigate costs, adjust their fee structures and communicate with parents as soon as possible. 

How you can start planning ahead

Considering the potential rise in costs, families should prepare ahead and develop robust financial strategies. Here are some to consider: 

• Start saving early – Families can leverage on compound interest by starting to save as early as possible.
• Consider contributions from Grandparents – In order to make tax-efficient contributions to school fees and lower the possibility of inheritance tax on their estate, grandparents can utilise their annual gifting allowance, which is currently £3,000 each. Gifts out of excess income may also be exempt, or they could establish trusts to pay fees. Trusts can be complex though, and not all families will be in a position to do this.
• Financial scholarships – Many private schools offer bursaries and scholarships to students who demonstrate academic excellence, artistic or sporting ability for example. Start researching and applying early to increase chances of securing one.
• Plan ahead for annual increases – Private school fees often rise by more than inflation and have averaged around 5% each year; when you combine this with 20% VAT on top, this is a significant increase so planning ahead for future increases is vital.
• Consider moving into the State Sector – If the costs are the straw that for you will break the camel’s back then you may wish to look at moving your children into the state sector now to have a better chance of a place at your chosen school.

How we can help

As private school fees rise, it’s more important than ever to actively engage in proactive financial planning. Seeking financial advice can help families develop comprehensive strategies, explore tax-efficient options, and create contingency plans while properly exploring how your children’s education fits within your own financial plan. 

If you’d like to learn more about how to plan for the education you want for your child's future, book a free initial consultation now and see how we can help. 

Sources: * Inews.co.uk; **Telegraph

Arrange your free initial consultation

This article is intended for general information only, it does not constitute individual advice and should not be used to inform financial decisions. 

The Financial Conduct Authority (FCA) does not regulate tax or trust advice.