We’re ending tax breaks for private schools from the start of 2025, to better invest in state education.
Currently, private schools are eligible for tax breaks, like charitable business rate relief, and they don’t have to charge VAT on tuition or boarding fees.
Final details of these changes will be confirmed in the Budget at the end of October, but here's what you need to know in the meantime.
Why are you introducing VAT on private school fees?
We are ending tax breaks on private schools to improve standards and opportunities for the nine out of 10 children who attend state schools.
The money raised from VAT will fund public services, including education priorities for the next academic year.
How much money will this raise?
The independent IFS (Institute for Fiscal Studies) has predicted that the tax would raise between £1.3 and £1.5billion a year to go towards the public finances and help improve education and outcomes for young people.
Details of the government’s assessment of the expected impacts of these policy changes will be published at the Budget on 30 October in the usual way, once they’ve been scrutinised by the independent Office for Budget Responsibility (OBR).
When will this come into effect?
The standard 20% VAT rate will be added to private school fees from 1 January 2025. Any fees paid from 29 July 2024 relating to the term starting in January 2025 and onwards will be subject to VAT.
Private schools that are charities will lose charitable business rates relief – which provides an 80% discount on the rates they pay on their premises – from April 2025.
Does this mean private school fees will go up by 20%?
We don’t expect that raising VAT will cause private school fees to go up by 20%.
This is because private schools, like other businesses, don’t have to reflect the VAT increase in the amount fee payers are charged.
We expect that private schools will try to minimise any fee increases.
Will this put more pressure on state schools?
Evidence from the IFS shows that raising VAT on private schools will have limited impact on the state school sector.
Over the last few years, the number of pupils enrolled at independent schools has remained largely the same, even when fees have increased by more than inflation.
Because of this, we expect the number of pupils who might decide to change schools to a state school from private schools to be minimal.
There is also lots of evidence to suggest that there are more than enough state school places for pupils who may move from a private school.
As of last year, 83% of primary schools had one or more unfilled places - the highest rate in a decade. This is reflected in secondary schools too, with 77% having one or more unfilled places.
We also work with local authorities to make sure there are enough school places for pupils living in the area.
How will this affect pupils with SEND?
How VAT affects private school fees for children with special educational needs and disabilities (SEND) depends on whether they have a local authority funded Education, Health and Care Plan (EHCP) and what it advises.
Fees for pupils with an EHCP that states they need a local authority funded place in a private school for specialist support, that can’t be provided by mainstream state-funded education, will not be impacted by VAT.
However, where parents and guardians choose to send their child with SEND to a private school, VAT will be applied to their fees. This applies where they have an EHCP, but the local authority has decided that a private school place is not necessary to meet their needs.
We are committed to making sure high-quality education is available for every child and will make sure there is earlier intervention in mainstream schools so that children with less complex needs can get the help they need.
Will fees that have been paid in advance also be taxed?
Any private school fees paid after 29 July 2024 for tuition and boarding fees covering a period on or after 1 January 2025 will be subject to 20% VAT.
Any fees pre-paid before 29 July 2024 for tuition and boarding from 1 January 2025 may also be subject to 20% VAT depending on the arrangements that the pre-payment scheme made. Your school will be able to provide more information on its pre-payment arrangements.
Does this mean private schools will end bursaries and scholarships in order to fund the additional costs?
How to fund new tax liabilities will be a commercial decision for individual schools, but there are a number of ways in which schools could choose to make cost savings.
We’re not expecting these changes to have a significant effect on bursaries across the private school sector in general.
What does this mean for military families who send their children to boarding schools?
Recognising the enormous sacrifices our military families make, the Ministry of Defence and the Foreign and Commonwealth Office provide the Continuity of Education Allowance (CEA) to eligible Officials and Service Personnel.
The government will closely monitor the impact of these policy changes on affected military and diplomatic families, and the upcoming Spending Review is the right time to consider any changes to this scheme.