An interview with
Chris Procter
Chris Procter and his team at Amber River SFIA (formerly SFIA Wealth Management) have been advising individuals and families for over 25 years,. They joined the Amber River Group in March 2023. Amber River SFIA provides independent financial planning and advice, helping to protect and enhance their clients’ financial wellbeing. They also specialise in school fees planning.
In this article, Chris gives his expert perspective on Labour’s proposed new VAT policy on school fees, and what parents can do to prepare.
The new Labour government's plan to introduce VAT on independent school fees has many parents concerned. This proposed move, aimed at increasing funding for state schools, could significantly alter the financial landscape for families currently investing in independent education.
This article explores the policy’s implications, potential impact on family finances, and practical strategies for financial preparation, helping parents navigate these possible changes.
The proposal
The Labour Party’s proposal to impose VAT on independent school fees is part of a broader strategy to generate additional revenue estimated at £1.7 billion.
Prior to the election, the then-shadow education secretary indicated this money would be used to raise standards across state schools.
However, a report by the Institute for Fiscal Studies highlights a potential unintended consequence: an exodus of approximately 40,000 students from independent to state schools. This could reduce the anticipated revenue by about £300 million annually.
The independent sector has also warned this could lead to widespread school closures, particularly affecting smaller independent schools rather than household names such as Eton and Harrow.
Financial implications for parents
Currently, independent school fees are exempt from VAT. If this exemption is removed, parents could see a 20% increase in fees. This is a substantial financial burden, especially for those who are already stretching the family budget to cover the costs.
According to the ISC Census report 2023 the average fee per child per year at independent schools is £16,656, rising to £36,000 for boarding students. With annual fee increases typically outpacing inflation, the added VAT could exacerbate the financial strain on not just wealthy families, but also those on more modest incomes who prioritise education for their children over other expenses.
The uncertainties ahead
Several details of the new government’s plan are still unclear, only adding to the uncertainty and concerns of parents and educational institutions alike. Key questions are yet to be answered like:
- What will the VAT rate be?
- When will the policy be implemented?
- Are there provisions for means testing or allowances for families with more than one child?
- How much will the fees actually go up?
While it’s easy to assume that all schools will raise fees by 20%, that’s not necessarily what will happen. Some schools might cut staff costs, reduce certain facilities or activities, lower profit margins, or attract more ultra-wealthy foreign students—or use a combination of these approaches instead of simply increasing fees. Therefore, it’s challenging to determine the best course of action until we know the actual impact on costs.
As a parent, how can you prepare?
Despite the uncertainties, there are several things you can do that may help to ease the impact of potential VAT on school fees:
- Advance payment: To avoid the initial cost hike, you could pre-pay the fees before the VAT is implemented. However, this might not be an option if Labour imposes the policy retroactively.
- Exploring credit options: Some schools might offer credit facilities to help you spread the cost of fees over a longer period.
- Family financial planning: Setting up trusts or reallocating assets could help you manage the increased costs. For instance, grandparents may be willing to set aside a living inheritance as a trust to support their grandchildren’s education.
- Tax efficiency: Ensuring your money is invested as tax efficiently as possible can free up additional funds.
- Increasing your income: You can consider ways to increase family income, like going back to work or working more hours.
- Budget adjustments: Once you’ve exhausted all other avenues, you may need to reprioritise your spending, potentially reducing non-essential expenses like subscriptions, a second holiday or a car upgrade.
Following Labour’s victory in the election, the VAT on independent school fees looms as a significant concern for many parents. While the specifics of the Labour Party’s plan are still taking shape, being proactive and keeping up to date with policy developments can help you prepare for any financial challenges this might bring.
Amber River Financial Planning
Given the complexity and potential financial impact of the proposed VAT on school fees, it is sensible to seek advice from a financial expert specialising in this area.
An Amber River SFIA Financial Planner can provide tailored advice, help with cashflow forecasting, and suggest specific strategies based on individual family circumstances and financial goals.
Get in touch
If you’re worried about school fees, talk to Chris or one of his team, or set an initial appointment with an Amber River financial planner in your area. Call us on 0800 915 0000, or alternatively use our contact form here.
Disclaimer
The information within this article was correct at the time of publishing, but laws and tax rules are subject to change. Your circumstances and where you live in the UK may also have an impact on your tax treatment.
To learn about the government’s most recently-announced changes, please read our latest budget roundup: 2024 Autumn Budget Update
