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UK Adds VAT to Private School Fees – What This Means for Parents
From 2025 onwards, the UK government will end tax breaks for private schools, meaning a 20% Value-added Tax (VAT) will now be added to their tuition and boarding fees. Private schools in general already boast high price tags, and this policy is expected to push the number even higher.
In this Pacific Prime UK article, we have compiled all the information about this new policy and the implications it might have on the private education sector and families with their children in private schools in the UK.
No More Tax Breaks for Private Schools
Until now, private schools are allowed tax breaks which means they are exempt from paying VAT. However, following the Labour government taking charge in July 2024, the tax break will end in January 2025, and 20% VAT will be added to school fees for terms starting from 1 January 2025 onwards.
The Institute of Fiscal Studies (IFS) has predicted that this private schools’ VAT will raise roughly 1.3-1.5 billion pounds a year for public finances and state-funded education. However, it also raises concerns among parents about whether they will have to bear the brunt of this 20% rise or if schools will absorb the cost.
Currently, around 5.9% of children in the UK are educated in private schools, or roughly around 620,000 students in over 2,500 schools. 75% of students in private schools come from the wealthiest 30% of households, with most of them coming from the richest 10% of households.
Private schools have sparked heated debates over the years for their exclusivity and roles in widening the wealth and opportunity gap in society. With fees at an average of GBP £17,200 per child, the price tag could be afforded only among the most affluent.
According to the research published in the British Educational Research Journal, private schools could be a major helping hand for students to achieve higher levels of education, high-status occupations, as well as higher wages, which continues the cycle of wealth circulated among the wealthy.
The Labour Party announced its plan for private schools’ VAT in the manifesto ahead of the 2024 general election with much debate from parents and schools alike.
What Will be the Impact?
Concerns already run high among parents regarding where this 20% hike would fall. Some schools, like the Giggleswick School, have announced that they would absorb the VAT fully, but some, like George Heriot’s, suggested that parents will be the ones to bear the cost.
IFS research predicts that private schools might take a small dip in their attendance, at around 3-7%, following VAT being levied on school fees. However, the dip should remain minimal as many students are from families that could shoulder the cost.
Meanwhile, in the past study by Independent Schools Councils, which represents over 1,400 independent schools in the UK and overseas, ISC expected that 10.7% of pupils might withdraw from private institutions within the first year of VAT being added, with a further 6.4% following in the next four years.
Since October 2023, over 60,000 people have signed a petition opposing VAT being added to private school fees, citing private schools as a life-changing opportunity for children who might need special care, come from a particular faith, or require boarding services.
However, a study in 2021 by IFS suggested that the number of students in private schools has never diminished despite private school fees having grown 20% beyond inflation since 2009.
Implication on International Students
International students make up for around 5% of pupils in UK private schools, or about 26,000 students.
With this newly instated policy, there has been speculation whether private schools will start rolling out a ‘differential pricing model’ for international students like the one already in place in many UK universities.
Under the differential pricing model, international students pay higher fees compared to British students. This pricing model has provided financial stability for many UK universities without relegating the cost to local students.
The 20% VAT might push private schools to instate the same model to soften the blow for local students, especially in small schools with small reserves. Some private schools already set higher fees for international students, whether many will follow suit or not will be under the attention of many parents in the UK and abroad alike.
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