The average cost of sending a child to a private day school soared to £7,832 per term when VAT was introduced in January this year. This figure is 22.6% higher than a year ago, based on data from the Independent Schools Council (ISC). The rise takes into account other cost increases as well as the VAT policy.
It means parents have to find an additional £1,361 per term, on average, or £4,083 per year. Those with more than one child in private school have seen their bills rise by even larger sums.
ISC chief executive Julie Robinson told the BBC the sector has been hit by a “triple whammy” of National Insurance changes, an end to charitable business rates relief and 20% VAT.
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“I’m sure sending out invoices with VAT on was a nail-biting moment for some heads, who would have been nervous about losing pupils,” said Oliver Barnett, head of private clients at Weatherbys Private Bank.
“As things settle over time, it would not surprise us to see management attempting to recover some of the discount they applied in January. Research from Weatherbys shows that schools have historically increased fees by above inflation.”
Fees tend to rise each year in September at the start of a new academic year. Even before the government’s VAT policy kicked in, ISC data shows fees increased by 8% in 2024 and 5.6% in 2023.
Based on ISC data and assuming annual fee inflation of 3% – a relatively conservative estimate – Weatherbys has calculated that parents can expect to pay £377,000 in fees over the course of their child’s full education.
“The key thing is to be realistic about the costs of private education from the start and to make robust, well-thought through plans with your adviser,” Barnett said.
1. See if grandparents can help
The majority of families receive help when paying private school fees – 65% according to think tank Civitas. Of this group, 30% have received a gift from family or friends, and 13% a loan from loved ones.
Many grandparents contribute towards the cost of a private education if they can afford to do so, with some seeing it as a good way of giving their grandchildren an early inheritance while they are still around to see the benefits.
Make sure you read up on the tax implications, though, as any money that is contributed by grandparents is likely to be classified as a gift for inheritance tax purposes.
This means you could end up having to pay 40% inheritance tax on the money, if the grandparent passes away within seven years of paying the fees, and their overall estate exceeds the tax-free allowance (known as the nil-rate band).
There are some exceptions, for example, gifts made out of surplus income are not subject to inheritance tax, no matter how large the amount. However, to qualify, the gift giver must be able to prove the gift has come from income rather than capital. Furthermore, the gift must not impact their quality of life.
If you are thinking about asking family for help, it is best to raise it with them sooner rather than later so they can factor it into their financial plans.
2. Consider the true cost of a loan
Families who are struggling may consider borrowing money to cover private school fees – particularly to avoid pulling their child out of school in an important exam year – but it is important to be mindful of the cost of interest.
“Some people will take a personal loan, some will remortgage their house and some will use monthly payment schemes set up by the schools. This adds interest to the huge costs involved,” said Sarah Coles, head of personal finance at investment platform Hargreaves Lansdown.
“In the case of monthly plans or personal loans, you might pay interest at around 6% or more. If you use a personal loan and borrow over more than a year, the cost of each subsequent loan will pile the pressure on even further. If you remortgage, the rate might be lower, but because you’re repaying for longer, the overall costs will be far higher.”
These routes are better avoided if possible.
If you do decide to remortgage to free up some capital, it could be worth looking at an offset mortgage. This type of mortgage is linked to your savings account and can help reduce the amount of interest you pay.
For example, if you have a mortgage of £100,000 and a linked savings account with £10,000, you would only pay interest on £90,000 of your mortgage – equivalent to a 10% saving.
Coles points out that keeping the school fee money in the linked savings account means you wouldn’t pay interest on it until you started drawing the money to pay the school. “You can also top the account back up if you get any windfalls, in order to bring interest payments down again,” she said.
3. Think carefully before moving house
Some parents say they have considered moving house as a result of higher private school fees. Some plan to relocate to a local authority area with better state schools, while others plan to move closer to another private school that has lower fees. Downsizing is also an option, if you want to funnel the money from selling your house into your child’s education.
However, it is important to remember that moving house comes with a heap of hidden costs. According to exclusive figures from comparison site Reallymoving, the total average cost of moving house in the UK is £15,978 when you include conveyancing costs, survey costs, estate agent fees, stamp duty, removal costs and EPC costs. This has surged 14% compared to last year, largely due to higher stamp duty costs.
It is important you take this into consideration when weighing up any savings, as this sum could go a decent way to covering a year’s worth of fees.
4. Apply for bursaries, scholarships and discounts
Some schools offer discounts for siblings and the children of staff members. You might also qualify if you work in a particular job, such as the clergy or armed forces. For families that are struggling, there are sometimes hardship arrangements and bursaries that might be of assistance too.
Another thing that’s worth finding out is whether there are any scholarships on offer. You may be able to access one if your child excels academically or in an area like sport, art or music.
5. Invest for the future
If you don’t currently have children in private school but are planning for the future, you could consider investing some money. You would need a decent time horizon ahead of you to ride out any short-term volatility though – ideally five to 10 years.
If you deposited £10,000 in a stocks and shares ISA on the day a child was born and managed to achieve an average return of 6% per annum, the investment could be worth around £19,000 by the time the child turns 11, which is secondary school age.
This sum wouldn’t be make-or-break in deciding whether you could afford to pay for a private education, but it could cover almost a year’s worth of fees. Remember that the average termly fee for a day school is now £7,382, according to ISC data.
You would need to use up some of your own annual ISA allowance to do this rather than opening a junior ISA in your child’s name. This is because you can only contribute £9,000 per year to a junior ISA, and the money cannot be withdrawn until the child turns 18.
Investing a regular monthly amount on top of the initial lump sum could result in a significantly larger sum. If you started with the same initial £10,000 lump sum and contributed a further £100 every month, you could have around £37,500 by the time the child turns 11, assuming the same growth rate as before.
6. Look into trusts
If you want to invest but have already used up your ISA allowance, you could consider investing through a bare trust. Bare trusts are often used to pass assets to young people. The trustees look after them until the beneficiary is old enough.
“Bare trusts are easy to set up – most investment companies have a form you can fill in. The advantage of these trusts is that income and gains are usually treated as belonging to the child, so they’re taxed as the child’s,” said Coles. This means they are typically within tax-free allowances.
“The exception to this is where money is paid into the trust by a parent and the income is £100 or more, in which case it is taxed at the parent’s marginal rate. It’s therefore most suitable for investments which don’t produce an income, or for contributions from grandparents,” she added.
If you have questions about tax liabilities, it is worth speaking to a financial adviser.
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