The last straw: VAT on school fees piles pressure on stretched family finances

VAT of 20% now applies to school fees for education provided on or after 1 January 2025. After the well-publicised and dramatic inflation in school fees over recent decades, fees now range from £15,000 - £60,000 per child per year – before extra-curricular trips such as sports tours, ski trips, and field trips. Whilst UHNW individuals won't notice or care about the VAT related increase - many fee-paying parents will be radically impacted.  

Imagine a GP and an accountant sending two children to a modest private school.  The basic annual bill might be c. £32,000. £38,400 with VAT – from highly-taxed net income. For a family prioritising schooling by cutting back on holiday expenditure and pension contributions, the VAT on top of fees will potentially be the straw that breaks the camel’s back.

Responding to increasing fees

Where children are close to finishing secondary education, it may be just too disruptive to take a child out of a school where they are happy and settled. Some parents will be tempted to tighten their belts another notch or two and ride out the extra expense for the last few terms.

When children are just starting out, the additional VAT costs may be the deciding factor that rules out private education. It’s much harder when a child has already started in private education. These discussions risk being fraught, given parents’ hopes, fears and expectations – and the overwhelming ambition each parent feels to do their best for their child.

Weighing the pros and cons is challenging at the best of times but even more so where the parents are separating or divorcing.

Parting ways

On divorce, resources must inevitably be allocated to support two family units. In all but very high net wealth families – this invariably means a change in quality of life in the separated households – and the issues are potentially polarising.

A spouse may have to decide whether to prioritise receipt of spousal maintenance – or ensuring that (increasingly expensive) school fees can be paid from finite income. If parents cannot agree on private or state education (therefore where a child is to be educated) and they cannot resolve matters by discussions, mediation or other form of non-Court dispute resolution, they may apply to the Court for a determination (under the children legislation) based on the best interests of the children.

However, recent case law in financial proceedings makes clear that even where a (children) judge has decided the children should attend a fee-paying school, a judge considering the financial aspects may conclude that ongoing school fees are not affordable and therefore, not in the best interests of the children overall. Accordingly, where affordability is impacted by the VAT hike on school fees – we can readily foresee that children risk leaving (or not starting) private education.

Although it is a cliché that house prices soar in the catchment areas of good state schools, a (strategic) response to unaffordability of private fees is to prioritise rehousing in the catchment of a stellar state school. Divorcing parents may therefore conceivably abandon private education but stake everything on securing capital to purchase in the catchment area of the ‘right’ state school.

Parents already paying spousal maintenance, child maintenance and school fees may find VAT on fees a stretch too far. However, unless agreement can be reached, court applications will potentially need to be brought both to vary financial arrangements and to determine future schooling. Mindful of delays, uncertainty and costs inherent in the court process (which may easily last 6-12 months) advisers may prefer to guide clients to resolve issues outside court – for example in mediation or arbitration.

International parents

For parents with international connections – there will be an increasing temptation to educate their children abroad. Anecdotally, one contact is seriously considering moving job and children to another European capital city. One year of school fees abroad will be less than one term of (pre-VAT) fees here.

However, unless both parents agree – relocation will have to be determined by the court. A ‘Leave to Remove’ application involves seeking permission from the Court to take the children to live permanently abroad. The relocating party presents a detailed case as to how and why the relocation will be in the best interests of the child/children. Considerations include contact with the left-behind parent, quality of life abroad, and crucially – the quality of education.

With unbelievably high stakes and extremely emotionally charged, these cases are finely balanced and never straightforward, either for parties or their advisers. Contrasted with unaffordable private education and uncertain state provision here, providing the children with affordable high quality private education abroad could be pivotal.

Going forwards

Whatever their profile, fee-paying parents won’t be thanking the government for VAT on school fees. However, for some families – the significance of the problem is only just starting to bite.

This article first appeared in Professional Adviser in February 2025.