How new tax rules are reshaping family finances and long-term planning
From 1 January 2025, private schools across the UK were required to apply 20% VAT to tuition and boarding fees. The change represents a significant shift in education funding and has placed substantial financial pressure on families with children in independent schools.
Not every cost is affected. Meals, textbooks, and transport remain VAT-exempt, though these constitute only a small part of total school expenses. The most significant impact is on tuition itself, which now bears a direct 20% surcharge.
Anti-forestalling rules and lost reliefs
Parents who hoped to pre-pay future fees before VAT came into effect found their plans hindered. Anti-forestalling measures introduced in July 2024 meant that any fees invoiced or paid after 29 July for education delivered in 2025 or later were automatically subject to VAT.
A further change occurred in April 2025, when private schools in England with charitable status lost their 80% business rates relief. This shift imposed extra financial pressure on many institutions that were already coping with higher operating costs.
Financial impact on families
According to the Institute for Fiscal Studies data, the typical pre-VAT annual fees schools charged were around £18,450 for day pupils and £37,750 for boarders. With the introduction of VAT, these have increased to approximately £22,140 and £45,300 respectively[1].
For children with Special Educational Needs and Disabilities (SEND) who have an Education, Health and Care Plan that names an independent school, local authorities receive VAT refunds from the Department for Education. However, families of other pupils with SEND do not qualify for this relief.
Sector response and legal outcome
Some schools have decided to absorb part of the cost to support long-standing families, while others have passed on the full increase; however, smaller and specialist schools face particular difficulties in adjusting to the combined effects of VAT and business rate changes.
Research data shows that out of 2,000 high-net-worth parents, 17% have borrowed against their homes to cover higher fees, 14% have downsized, and 20% have paused pension contributions[2]. Nearly a quarter have taken on extra work or sought higher-paying roles to meet rising costs.
Planning strategies for school fees
For those looking to manage these expenses, structured financial planning has become crucial. Some families are turning to trusts or gifting arrangements to reduce the burden.
- Education trusts enable grandparents to fund their grandchildren’s schooling while maintaining control over when and how the funds are used.
- Bare trusts grant children full entitlement at 18 (or 16 in Scotland), often allowing them to take advantage of their personal allowances.
- Gifting out of surplus income can be exempt from Inheritance Tax (IHT) if regular and properly documented.