According to the Business Matters, the UK chancellor, Rachel Reeves has confirmed that private school fees will be subject to VAT from January 2025.
The government intend to use the money raised to fund additional teachers in the state sector.
If schools pass on the full cost of this to parents, you’ll likely see a significant increase in the cost of educating your child privately.
You may have planned private education for your child or children, so this article looks at the potential costs, and suggests some ways to help you prepare financially.
It’s important to plan ahead
Sending your child to private school is a significant financial undertaking. A good deal of advance planning may be required, particularly given the rate at which costs are going up.
Regardless of the impending imposition of VAT, the latest figures from the Independent Schools Council (ISC) reported by MoneyWeek reveal that fees for the just-ended 2023/2024 academic year increased on average by 8%.
The same MoneyWeek article also confirms that the average annual cost of private school fees is currently £18,063, with the equivalent cost of boarding school fees being £23,925 for day pupils and £42,459 for full boarders.
Clearly the cost of fees will differ between schools and in different parts of the country.
To get a good idea of what your financial commitment could be, this School Fees Checker can help you compare costs.
So, unless you already have the means, long-term financial planning becomes even more important to help you make it as affordable as possible.
Read about three steps you could take to help you meet the cost of your children’s school fees.
1. Start saving as soon as you can
As with other substantial financial commitments, it’s important to start planning as soon as you can.
Furthermore, the benefits of compounding and long-term investment growth mean that the sooner you can start saving, the better.
How much and how you save money will depend on your financial time frame.
If you are able to save for five years or more, you could consider investing your money rather than using a savings account. This is because over such a term, stock markets will often out-perform cash savings.
If you are investing, a Stocks and Shares ISA is a highly tax-efficient investment vehicle.
Each tax year, you have an annual allowance for ISA contributions (£20,000 in 2024/25). You then don’t have to pay any Income Tax or Capital Gains Tax (CGT) on returns generated within your ISA.
For example, if you start investing when your child is born with a £10,000 initial investment and then £200 each month, according to Calculator Site your fund would be worth £52,413 by the time your child is 11 years old. This assumes a 5% gross annual investment return before charges and other deductions.
If both you and your partner both did this, you would have a combined fund of over £100,000 – providing sufficient funds to cover at least a couple of years of private fees.
2. Get help from elderly relatives
As well as saving yourself, you might also want to consider getting help from other family members. Naturally, this will depend on their own financial circumstances, and you should be confident that support of this kind will not threaten their own long-term financial security.
Grandparents are often looking for tangible ways to support their grandchildren. So, contributing towards their educational costs will provide them with the bonus of seeing their financial gift put to good use while they are still alive.
Furthermore, paying school fees is a good way to pass wealth between generations. Doing so can help reduce the size of their overall estate, which could then reduce the Inheritance Tax (IHT) liability on the value of their estate when they pass away.
However, it’s important to note that any gift above the current annual exemption of £3,000 will be deemed as a “potentially exempt transfer”. This means that it will only be exempt from IHT if they survive for seven years after making the gift.
A possible alternative is to treat the money they pay each year towards school fees as a “gift from surplus income” for which there is no maximum amount.
However, such gifts must be seen to come from income rather than accrued wealth and must not have an adverse effect on their quality of life. It can be sensible to seek advice to ensure that any gifts family members make are as tax-efficient as possible.
3. See if support is available from the school
If you know where you want your child to be educated, another possible source of financial help is from the school itself.
Many private schools offer bursaries and scholarships that can help you cover some – or even all – of the cost of school fees.
To take advantage of these schemes, it is sensible to make enquiries about the various options available as soon as possible, as there may be certain eligibility requirements that you and your child will need to meet.
Scholarships are often offered for overall academic excellence or in specialist areas such as a particular subject or excellence in a pastoral field such as sport or music.
Additionally, some private schools have their own funding schemes you may also be able to take advantage of.
Get in touch
If you would like to talk about your school fees plans, or any other aspect of your financial planning, please get in touch with us.
Please note
The value of your investments can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.
This article is for information only. Please do not solely rely on anything you have read in this article and ensure that you conduct your own research to ensure any actions you may take are suitable for your circumstances.
All contents are based on our understanding of HMRC legislation, which is subject to change.
