Private School Fees: Preparing for a Potential Labour Government

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 sacrifices along the way, it is often said that as a parent you should provide the very best education you can afford.* However, with a potential change in government on the horizon, the landscape of private school fees could be set for a dramatic shift.

If the Labour Party win the general election on July 4th, they have confirmed their intention to remove the VAT exempt status of private school fees, shortly after taking power.** Although it’s expected that they may delay it until September 2025.*** If or when it does happen, this change would have far-reaching implications, with parents being required to pay VAT on fees, potentially increasing costs by 20%.  

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Private day schooling currently costs an average of £15,324 per year, whilst boarding schools cost around £39,006. Add in annual increases in costs of about 5% on average can quickly make it unaffordable for many families.

Based on an average annual cost of £15,000, the introduction of VAT on private school fees could increase costs by 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 claims their new policy would raise £1.3 billion to increase the standard of state education. However, if families are unable to pay for increased costs of private education, more children may end up entering 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

Some private schools offer advanced payment plans, providing discounts for paying upfront. Paying in advance schemes could offer an opportunity to reduce the impact of VAT on school fees if rules are changed by a Labour government. In theory, a lump sum paid before VAT becomes payable on school fees will not attract VAT. Whilst this might seem like a good investment, it’s essential to consider the financial health of the institution. Essentially this is a loan to the school. Parents should evaluate whether they are comfortable with this arrangement, especially since private schools, even the larger ones with more than 2,000 pupils, are still relatively small institutions. Despite those high fees, many operate on very small margins and may not have much by the way of reserves. It is therefore important to ensure the school is financially stable before making such a commitment. It is also worth considering that Labour may propose legislation that applies VAT to pre-payments retrospectively.  

How some schools are preparing

Some schools are taking proactive measures in response to the potential changes. For example, to keep education accessible for as many families as possible, the Grammar School at Leeds has revealed 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 may follow suit and take similar actions.

How you can start planning ahead

In light of 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 the possibility of VAT on top, this is a significant increase so planning ahead 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.

Whilst the exact details of Labour’s proposed policy on private school fees remain uncertain, proactive financial planning is crucial. Seeking financial advice can help families develop comprehensive strategies, explore tax-efficient options, and create contingency plans.

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; ** BBC; *** Citywire; ****Telegraph

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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.