Some of our clients have recently voiced their concerns about the impact of the introduction of VAT on private school fees, which forms part of the Labour party’s election manifesto.
What are Labour's plan's for private school fees?
In the event Labour wins the General Election on 4 July, it has pledged to remove the VAT exemption currently in place on private school fees.
How much would private school fees increase by each year under the Labour party?
Private schooling can cost £50,000 a year or more, although the average across the UK is £15,000*. The rate of VAT is currently 20%, which means parents could face an additional cost of £3,000 a year on average if schools opt not to absorb any of the increase themselves. However, in practice, the rate of VAT could end up being less than this because being VAT-registered would mean schools could get VAT deductions on some goods and services they buy.
We know that some of our clients who are grandparents have been looking recently at whether they can afford to gift money to their families to help with the cost of school fees, while also potentially reducing future inheritance tax liability. You may wish to consider if the potential VAT savings would outweigh the potential return on your savings or investments over a year. You should discuss this with your financial planner.
Some schools are suggesting that parents pay for a year or more of school fees upfront before the election on 4 July. Paying for one full year of private school fees upfront could give you peace of mind that you’re unlikely to face additional costs. However, paying for more than one year upfront may not have the benefit you expect – the Telegraph reports that some schools are adding clauses to their terms and conditions on ‘fees in advance’ schemes reserving the right to backdate VAT charges. This a fallback to prevent them from getting into trouble for tax avoidance later on.**
It’s worth noting that, if a policy to introduce VAT on school fees were introduced by a new government, it may not come in straight away but could require some lead time to implement. Bringing the change in from the start of the next financial year (April 2025) could be a possibility.
We’ll be paying close attention to the result of the General Election and what it might mean for your money.
Find out more
*Source: Institute for Fiscal Studies https://ifs.org.uk/publications/tax-private-school-fees-and-state-school-spending
** Source: The Telegraph https://www.telegraph.co.uk/money/tax/parents-pay-school-fees-advance-risk-tax-clawback-labour/
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