30 October 2024
If you are covering the budget and Labour’s reconfirmation of its plan to add VAT to private school fees, please see the following comment from Shaun Moore, tax and financial planning expert at Quilter:
"Labour’s recent confirmation of their plan to impose VAT on private school fees and remove charitable business rates relief for private schools marks a significant shift in the education funding landscape. Starting from January 2025, private school fees will incur a 20% VAT charge, with business rates relief set to end by April 2025.
"From a financial planning perspective, this change introduces new challenges for families relying on private education. Adding VAT could significantly increase school fees, with the average cost for a day pupil likely to rise by around £3,100 per year. For many parents, this added cost could make private education financially unfeasible, potentially leading to an influx of students moving from private to state schools. This shift could place additional pressure on the state system, which may struggle to accommodate the increase in student numbers in certain areas.
"Our calculations found that a couple would need to earn at least £102,000 a year to be able to send two children to a private day school, when fees go up 20 per cent in January.
"The calculations assumed that two parents earning £51,000 a year each would be left with a total of £76,500 after tax and a 5 per cent pension contribution, which would allow them to pay £43,350 a year in private day school fees; spend £15,100 a year on their mortgage; and about £18,000 on other living costs such as groceries, eating out and holidays. Many parents will, however, have higher mortgage costs.
"Parents would need to earn £208,000 between them to pay the £102,000 average annual cost of sending two children to boarding school. This was 80 per cent higher than the £116,000 they would have needed 14 years ago.
"A sole earner would need a salary of £245,000 to send two children to boarding school and cover costs. They would need more because they would lose more of their income to tax.
"For families committed to private education, wealth transfer planning becomes even more relevant. While Labour’s policy may inadvertently encourage some families to explore gifting allowances to cover these increased fees, the wider impact is that it raises the cost of education considerably. For high-net-worth families, planning how to manage these new educational expenses without incurring additional tax liabilities will be critical."
