We all want to give our kids the best possible start in life and for many parents this means sending them to an independent school, which is costly. And this choice is set to become even more expensive, as the government introduces the 20% VAT charge on independent school fees from January next year.
The government has previously suggested that instead of passing this cost on to parents, independent schools can absorb some it by reclaiming VAT on certain costs like utility bills. However the outcome of this still appears to be unknown for parents and, in the meantime, there’s not much time to plan until 2025.
For anyone who may have been considering prepayment options before VAT is introduced, a quick catch up on the government’s most recent announcement that any fees paid in advance from July 29 for next year’s terms would be subject to the tax.
READ MORE: Average private school fees soar to more than £18,000 a year
Sending children to an independent school is already a significant financial commitment for families. According to the latest figures from the Independent Schools Council, fees increased by 8% on average across 2023 and 2024, in large part driven by inflation. This means typical fee levels now sit at just over £18,000 per year, and that’s without additional costs like uniforms and school trips.
If the thought of adding 20% VAT on top of all this is weighing heavily on your mind, there are options that could help you handle this additional cost without compromising your broader, longer-term financial goals. Let's explore some practical steps you might take to rethink your financial strategy and when it could be the right time to seek professional advice.
One option people many often turn to when it comes to supporting children through their education is to ask relatives for help.
A gift from grandparents can be an effective way to help with the increased fees, if they’re financially able and willing to contribute. That said, it’s always important to approach this option with caution as there may be tax implications, as well as emotional consequences.
READ MORE: UK Education Secretary denies VAT rise causing private school closures
When faced with a sudden increase in expenses, it can be tempting to dip into your savings or investments to cover the shortfall. As a parent, it’s natural to want to prioritise your child’s education above all else.
While this might seem like an easy fix, it’s important to consider the longer-term consequences. For example, if you decide to cover the higher fees now, how will that affect your retirement plans? Will it delay a move to a new home, or impact your ability to maintain your current lifestyle?
By viewing these decisions in the context of your entire financial plan, you can avoid making choices that might lead to bigger problems down the road.
A particularly powerful tool that is often used by professional financial planners to help people in this type of situation is cashflow planning. Essentially, cashflow planning maps out different scenarios to understand the potential impact of something like increased school fees on your financial future. Using detailed projections of income, expenses and savings over time, it allows you and an adviser to visualise how certain adjustments to your finances could make a difference.
READ MORE: Keir Starmer is right to apply VAT to private school fees
By really understanding the long-term implications of higher school fees, you can make informed decisions and take necessary steps without having to compromise one priority over another.
A final word for any readers making future plans to send their child to independent school: start planning early if at all possible. This should make it easier to budget for additional costs over the years.
Although you certainly want to prioritise your kid’s education, try not to consider this in a vacuum. Again, getting started early should give you time and space to build this in as part of a long-term financial plan that feels comfortable for you and your family.
Jen Paice is chief executive of Aberdein Considine Wealth
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