Private schools lose high court challenge over VAT – how much more will you pay?

A legal challenge against the government’s VAT policy on private school fees has been dismissed by the high court, dashing hopes for many families.

Lawyers argued that the policy was discriminatory on the basis that some families have no alternative school in their area that can meet their children’s needs. This includes children with special educational needs and disabilities, and those looking for a single-sex or faith school. Lawyers also argued that the policy was unprecedented elsewhere in Europe.

While the judges acknowledged that the policy did interfere with some of the claimants’ human rights, they concluded that parliament has “a broad margin of discretion in deciding how to balance the interests of those adversely affected… against the interests of others who may gain from public provision funded by the money it will raise”.

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Forecasts published in the Autumn Budget suggest the policy could raise £1.7 billion per year by 2030, which the government plans to funnel into the state sector.

The decision will come as a disappointment to those holding out hope that the policy might be overturned. The government’s policy of charging VAT on private school fees kicked in on 1 January, adding thousands of pounds to parents’ bills each year.

Data from the Independent Schools Council (ISC) shows the average termly fee for a day school in January 2025 was £7,382, including VAT. This is 22.6% higher than the same period a year ago, when the average fee was £6,021.

How much more will you pay?

Depending on the school in question, parents could find themselves shelling out even more.

Analysis from wealth manager Rathbones suggests parents may need to find £111,300 more over the course of their child’s education now that VAT has been added. The calculations assume a child starts at a private day school in September, aged five, before attending boarding school between the ages of 12 and 18.

The figure rises even further for schools in London, where the additional cost could be as much as £129,500.

Day school fees are slightly lower, but the potential increases are still eyewatering. Parents will pay £76,900 more on average across the UK, assuming the child attends the school from five to 18. In London, this rises to nearly £95,700 more.

The analysis takes annual fee rises of 4% into account, which has been the average since 2016.

How much does private school cost?

To send a child to a private day school from age five to 18 now VAT has been applied costs £461,431 on average in the UK, Rathbones’ data shows. This is equal to four years and three months of income after tax for a couple earning £150,000.

To start at day school aged five and then begin boarding from 12 to 18 costs £667,900 on average, if the full 20% VAT is added – equal to six years and two months of post-tax income for the same couple.

Faye Church, senior financial planning director at Rathbones, said: “The impact on parents’ finances over a child’s school career of adding the full 20% VAT to fees is substantial and may mean some will decide they cannot afford the expense or need to consider other ways in which to manage the costs of the education for their family.

“However, it was already the case that funding a child through private school is a major commitment, with the average total cost at around £380,000 for day schools and £556,000 for day and boarding schools before any VAT is applied to fees.

“If there are several children, of course this will multiply, and we’re hearing from families who are very concerned and helping them plan for this.”

Have you got a money story you’d like to share? Get in touch by emailing editor@moneyweek.com.

Fee increases by region

The below table, based on Rathbones’ data, shows the extra cost around the country for parents of pupils starting at age five and staying at school until age 18, if the full 20% VAT is passed on. All figures assume a 4% increase each year in fees.

Four things to consider if you’re struggling with school fees

Private school pupil numbers dropped by 11,000 between January 2024 and January 2025, according to data from the Department for Education. This represents a 1.9% drop, compared to a 0.7% drop in pupil numbers across all school types.

Those who are only just holding on could decide to pull their children out this summer when the academic year comes to an end – a more natural time to change schools than in January, when the new VAT policy came in.

Changing school at an inopportune time can prove disruptive to your child’s education, so it is important to plan ahead if you are struggling financially. Here are four key considerations.

1. 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. For further analysis, see our piece: “Are you better off moving house to beat Labour’s private school fees hike?”

2. Read up on inheritance tax rules if grandparents are paying

Increasingly, grandparents are getting involved in helping out with school fees. But there are some important tax rules that you should know about before relatives make a contribution.

There are some strict rules on gift giving to prevent families from avoiding inheritance tax. Anyone is permitted to give away up to £3,000 in tax-free gifts each year. However, anything above this limit is generally classified as a "potentially-exempt transfer". In other words, it is only free from inheritance tax if the gift giver survives for seven years after making the gift.

Even if the grandparent pays the grandchild’s school fees directly rather than passing the money over to the child’s parents, the rules around potentially-exempt transfers still apply.

There are some exceptions. For example, "gifts from surplus income" are not subject to inheritance tax, no matter how large the amount. But to qualify, the gift giver must be able to prove the gift has come from income rather than capital. What’s more, the gift must not impact the giver’s quality of life.

3. Find out whether your school offers any support systems or 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.

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.

For families that are struggling, there are sometimes hardship arrangements and bursaries that might be of assistance. However, as one MoneyWeek reader pointed out, scholarships and bursaries could be one of the first things to be cut by schools now the government has introduced VAT. This is because they are subsidised by money from fee-paying parents.

4. If you are planning for the future, consider investing

If you don’t currently have children in private school but are planning for the future, you could consider investing some money in a stocks and shares ISA. 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 around 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.