VAT on private school fees

Imagine this: you have carefully chosen the right school for your child, mapped out the finances, made sacrifices and committed to a future you believe in. Then a major tax change is announced which could significantly alter what private education costs in the UK.

This was the reality for many families last year, when the government confirmed that VAT would be applied to private school fees from January 2025[1]. It has since sparked a wave of questions: How much more will we be paying? Will this change our child’s schooling? Can we still afford what we planned for?

If you are feeling unsettled, you’re not alone. The good news is that with a clear understanding of the impact, and a strategic financial plan, you can prepare for what lies ahead.

What has changed to private school fees?

From 1 January 2025, private schools across the UK are required to add 20% VAT to their tuition and boarding fees. This includes vocational training for under-19s at private sixth forms and similar institutions.[2] This marks a significant shift in education policy and has since impacted families with children in independent education.

That said, it is not a blanket tax on everything. Some elements continue to remain VAT free. These include goods and services ‘closely related’ to education, such as meals, textbooks, and school transport.[3] While this offers some relief, it’s a fairly narrow category and hasn’t softened the impact much for most parents when it comes to the core cost: tuition and boarding.

A critical point in 2025 has been the anti‑forestalling rules. Introduced to close any potential loopholes, these rules prevent schools and parents from avoiding VAT by paying in advance.[4] Any fees invoiced or paid after 29 July 2024 for education delivered in 2025 or later are now automatically subject to VAT. This has left many families who hoped to ‘lock in’ fees early by paying their child’s entire schooling fees ahead of the inclusion of VAT facing higher‑than‑expected bills. For those who did pre‑pay before the cut‑off date, the window has firmly closed, and schools have been under strict guidance from HMRC to apply the VAT correctly.

In addition, as of April 2025, private schools in England with charitable status, around half of them, no longer receive the 80% relief on business rates. Previously treated like other charities, these schools now face the full tax on their properties.[5]

How much more could families pay?

To put it in context, the average private day school fee in the UK currently sits around £16,656 per year, while boarding schools can charge on average upwards of £37,000 annually, depending on the institution and region.[6] With VAT applied at 20%, families could see their fees rise on average by £3,300 per child per year for day schools, and by £7,400 or more for full boarding. When looking at your child’s entire education from 5 to 18, this could be nearly £76,905 more than if there was no VAT, according to an analysis by Rathbones.[7]

For children with Special Educational Needs and Disabilities (SEND) who have an Education, Health and Care Plan (EHCP) that names an independent school, the local authority will be refunded the VAT on fees by the Department for Education. Families of other children with SEND attending private schools will not receive any VAT relief.⁵

Sector’s response to VAT on private school fees

The policy shift has sparked strong pushback from across the independent education sector. Several schools and organisations, including the Independent Schools Council (ISC), launched legal challenges in the High Court, arguing against the VAT changes and removal of charitable relief. However, in June 2025, those challenges were dismissed, with the court affirming the government’s legal right to proceed.[8] The Treasury estimates the policy will generate £1.8 billion annually by 2029–30.[9]

In the wake of the ruling, schools have responded in varied ways. Some are absorbing part of the VAT increase themselves in an effort to support families, particularly where long term loyalty or bursary commitments are at stake. Others have passed the full 20% on to parents, often reluctantly, citing rising operational costs and the additional blow from losing business rates relief. The ISC has warned that the changes could particularly impact small and specialist schools, which don’t have large financial reserves or broad income streams.[10]

How families are responding

For many families, the introduction of VAT on private school fees has prompted difficult financial decisions and lifestyle adjustments. While some may be able to absorb the increase without major disruption, a growing number are restructuring their finances to keep their children in independent education.

According to the Saltus Wealth Index, based on survey with over 2,000 high net worth individuals (each with investable assets over £250,000), 17% of parents with children in private school have taken out extra borrowing against their homes to help cover the additional cost brought on by VAT.[11]

Nearly 14% said they plan to downsize their homes, while 20% have reduced or paused pension contributions, a long term sacrifice to manage short term educational costs. Perhaps most tellingly, nearly a quarter (24%) of respondents said they had either taken on extra work or found higher-paying jobs to meet the rising fees.

Financial planning strategies

Education trusts

Education trusts can be a useful way to formalise long term school fee planning, especially when grandparents want to help without simply handing over cash. A discretionary trust, for example, allows the trustees (often the grandparents) to retain control over how and when money is distributed, which can provide flexibility if there are multiple grandchildren or changing circumstances.

In terms of tax, assets in a discretionary trust may fall outside the donor’s estate for inheritance tax (IHT) purposes after seven years, provided no benefits are retained. However, these trusts are subject to relevant property regime rules, meaning they can attract periodic and exit charges if the value exceeds thresholds, so they require careful structuring.[12]

Bare trusts

A bare trust is a structure in which assets are held by a trustee for a named beneficiary, who has an absolute right to the capital and income. When the beneficiary is a child, the assets are typically managed by an adult until the child reaches 18 (or 16 in Scotland).¹²

Bare trusts can be used to pay for private school fees and may offer tax advantages depending on who sets up the trust. Income and capital gains are generally taxed on the beneficiary, who may have unused allowances such as the personal allowance, capital gains tax allowance, and dividend allowance.

This can be particularly efficient when grandparents fund the trust. However, if parents gift into a bare trust, any income over £100 per year is still taxed on the parent, which may reduce the effectiveness of this strategy for school fee planning.

Pensions and mortgages

If you are looking to fund fees directly, revisiting existing financial commitments may help release short term cash flow. However, it’s important to understand these options can have a significant impact on your financial future and should be carefully considered. For example:

• Reducing or pausing pension contributions can free up cash, though this should be balanced against long term retirement planning and isn’t right for everyone.
• Releasing equity from the family home, either through remortgaging or offset mortgage structures, may provide a buffer. Some offset mortgages allow you to reduce interest payments while still keeping money accessible for termly fees.
• For families nearing retirement, drawing down from pensions (post-55) under the pension freedoms may also be an option, though this has implications for tax and long term income sustainability.

Each of these options carries risks and trade-offs, so speaking with a financial adviser is incredibly important.

Gifting strategies

In addition to trusts, some gifting strategies may be an option to help lessen the burden.

Gifting out of surplus income is one way that grandparents or other individuals could support a child’s private education. Under IHT rules, individuals can make regular, tax-free gifts from income (not capital) if they can demonstrate the gifts don’t affect their standard of living. For example, a grandparent with a high pension income might pay termly school fees directly, and these payments could be exempt from IHT with the right records in place. No seven-year clock applies, and there’s no cap, making it a useful tool for the right families.[13]

Other gifting strategies which could help ease the strain:

• The £3,000 annual gift exemption allows individuals to give this amount IHT-free each tax year. If unused, it can be carried over for one year.[14]
• Small gifts (£250) can be made to multiple individuals without affecting the annual allowance, provided they haven’t received any other exempt gift.
• Larger gifts are known as Potentially Exempt Transfers (PETs). These fall outside the donor’s estate after surviving seven years, assuming no benefit is retained.[15]

Gifting strategies can work particularly well for grandparents but must be documented carefully especially when used for regular school fees.

Making use of government incentives early

For parents with young children, or those planning ahead, it’s worth looking at the support already available to help with early years childcare, as it may free up money that could go toward future school fees.

One of the most valuable schemes is the 30 hours of free childcare currently offered to working parents of children aged three or four. As of September 2025, this scheme will be extended for all eligible working parents of children who will be nine months old before 1 September. This could save parents up to £7,500 a year per child.[16]

However, there’s an important catch: it is only available if each parent earns under £100,000 per year. What many may not realise is that earning even slightly over this amount, just by a few pounds, means losing the full 30 hour entitlement.

If you’re close to that threshold, it’s worth considering ways to bring your income below it, such as increasing contributions to your pension. Not only can this help you stay eligible for the free childcare hours, but it also means you’re making tax-efficient use of your earnings (and potentially staying out of the 60% tax trap: Earning over 100k? : Tips to avoid the 60% tax trap | Saltus).

Even if you’re over the £100,000 mark, families with children aged three and four can still benefit from 15 hours of free childcare per week, which can help ease the financial load early on.

Making use of these schemes now may create a bit more breathing room when it comes to covering rising education costs down the line.

Why cash flow planning matters

With VAT now added to private school fees, cash flow planning becomes even more critical to ensure long term financial goals aren’t compromised.

Owing to this, cash flow planning becomes incredibly valuable. It’s not about whether you can afford the fees and additional VAT today, but how those payments might affect other areas of your financial life in the years ahead. For example, will paying increased school fees limit how much you can save for retirement, delay helping children with a house deposit later on, or affect your ability to move home or reduce your working hours in future?

Working with a financial adviser can bring real clarity to these questions. They can help you build a personalised financial plan that includes projected school fee payments, alongside all your other goals, so you can see the full picture.

What’s right for you?

Paying for private education has always required careful planning, and the introduction of VAT has added a greater need for structuring fees intelligently. Through careful financial review, families may be able to mitigate at least some of the pressure.

For most, the key is early planning and qualified advice. What works for one family may not work for another but there are options out there, and the sooner you explore them, the more choices you’re likely to have. A financial adviser can help you navigate increased private education fees in a way that suits you and your family best.

The Financial Conduct Authority does not regulate Estate Planning, Tax Planning or cashflow modelling