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
If you have any questions or concerns, please speak with one of our financial professionals.
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*Source: Institute for Fiscal Studies

** Source: The Telegraph

The information and opinion contained in this article should not be treated as a forecast, research or advice to buy or sell any particular investment or to adopt any investment strategy. Any views expressed are based on information received from a variety of sources which we believe to be reliable, but are not guaranteed as to accuracy or completeness by atomos. Any expressions of opinion are subject to change without notice. Past performance is not a reliable indicator of future results. Investing involves risk and the value of investments, and the income from them, may fall as well as rise and is not guaranteed. Investors may not get back the original amount invested.

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