Private school fees have risen in tandem with inflation over the past few years, and have now become an unaffordable burden for many households.
As parents also grapple with higher mortgage rates, energy bills and weekly food costs, more than one in five are now considering moving their child from their current school. That’s according to data from the latest Saltus Wealth Index report.
The report also reveals that even more parents could be forced to pull their children from private school if the government starts charging VAT on fees – a measure which could come into effect if Labour wins the next general election. The figure under this scenario increases to 26%.
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Private education has long been a controversial topic. Those on one side of the argument point out that it supports (and deepens) educational inequality, while those on the other side see it as a sticking plaster in an imperfect system.
Whatever your ideological views on the topic, if you don’t have access to good state schools in your borough, it is possible that you have considered private school for your child. The Independent Schools Council (ISC) estimates that around 620,000 children are currently privately educated in the UK, representing around 5.9% of the school-age population.
With fees now considerably higher than they were – and with the threat of VAT looming – many parents are taking drastic steps to free up more of their finances. Some are remortgaging, taking out loans, or relocating to a new borough with better state schools. Others are calling in a favour at the 'Bank of Grandma and Grandad'.
Before you make any big financial decisions, there are some important considerations to weigh up.
How much does private school cost?
The latest census from the ISC reveals that private school fees amount to £16,656 per year for the average day-school student. Of course, this figure varies depending on the school and region of the country. It can also vary depending on the age of the child.
However, assuming you send your child to private school between the ages of 11 and 18, you are probably looking at a bill in the region of £116,000. Fewer parents send their child to a private primary school, but if they start aged four, the bill will be closer to £233,000. And if you have more than one child, the cost will only multiply.
It is also worth mentioning that the latest ISC census was conducted in January 2023. We don’t have the January 2024 figures yet, but you can expect them to be considerably higher given the effects of inflation. “On average, private school fees increased by 6% from 2022 to 2023 and these are likely to rise by a further 5% this September”, said Mike Stimpson, Partner at Saltus.
How likely is the government to introduce VAT on private school fees?
If Labour wins the next general election, many believe it could introduce 20% VAT on private school fees. Speaking to the BBC’s Nick Robinson on his Political Thinking podcast, party leader Sir Keir Starmer said that the measure was not an “attack on private schools”, but a move to help fund improvements to the struggling state system.
The downside for parents paying school fees is that this would push their cost burden up considerably. Julie Robinson, chief executive for the ISC, argues that charging VAT would “have the greatest impact on the families who work the hardest to pay the fees” – those who have lower incomes but “sacrifice other spending”.
In his conversation with Robinson, Starmer suggested that schools could absorb the cost increase rather than passing it on to parents in fees. However, critics have said that smaller private schools in particular are run on tight margins. This would make it difficult for them to absorb some or all of the additional cost.
Despite reports that Labour is considering this policy, the party has not yet published its election manifesto. In the meantime, parents with children in private school will be listening closely for further details – particularly with Labour so far ahead in the polls.
Are parents struggling to afford private school fees?
According to the Saltus report, which surveys 2,000 people with investable assets of more than £250,000, parents are struggling to pay rising private school fees.
One in five say they will need to pull their children out of private education thanks to higher costs, while one in four say they will need to take on additional borrowing to cover the fees. Meanwhile, one in ten say they will need to turn to family and friends to cover the shortfall. And that’s all before any potential VAT changes.
“Price rises over the past few years are already having a significant impact on parents’ ability to pay and further rises will almost certainly price some families out of private education completely”, says Stimpson.
Three things to consider if you’re struggling with school fees
Moving a child out of their current school at an inopportune time can prove disruptive to their education, so it is important to plan ahead if you think your financial situation has changed. We highlight the key factors to bear in mind.
1. Think carefully before remortgaging
Some parents who are struggling with higher fees consider remortgaging their house to fund their children’s education. However, mortgage rates have skyrocketed over the past couple of years as the Bank of England hiked interest rates in an attempt to control inflation.
The average two-year fixed residential mortgage rate is currently 5.83%. Meanwhile, the average five-year rate is 5.41%, according to the latest data from Moneyfacts.
Imagine your child has five years of school left, and you remortgage your house to cover the full amount:
- Average annual school fee: £16,656
- Cost of five years of schooling: £83,280
If mortgage rates were to stay at around 5% for the full period, this is roughly how much it would cost you to repay the loan in full over a range of different terms. The figures show the cost of repaying the principal sum plus interest, and have been calculated using HSBC’s mortgage repayment calculator:
- 10-year repayment period: £105,998 (monthly repayments of £883)
- 15-year repayment period: £118,543 (monthly repayments of £659)
- 20-year repayment period: £131,907 (monthly repayments of £550)
- 25-year repayment period: £146,054 (monthly repayments of £487)
While mortgage rates are likely to fall from their current level once the Bank of England starts cutting the base rate later this year, the lowest they have been over the past 25 years is 3.59% (September 2021), according to Mortgageable. Meanwhile, the long-term average between 1995 and 2022 is higher than you might think, at 5.62%.
Remortgaging the family home will allow parents to spread the cost of school fees over a longer time horizon – but they should think carefully about whether they are willing and able to accrue hefty interest repayments.
2. Consider the hidden costs of moving house
According to the report from Saltus, some parents have considered moving house as a result of rising private school fees.
Some relocate to a borough with better state schools, while others move closer to another private school with lower fees. Downsizing is also an option, if you want to funnel the profits 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. If the new property you are buying costs more than £250,000, you will need to pay stamp duty.
| Property value | Stamp duty land tax (SDLT) rate |
|---|---|
| Up to £250,000 | 0% |
| The next £675,000 (the portion from £250,001 to £925,000) | 5% |
| The next £575,000 (the portion from £925,001 to £1.5 million) | 10% |
| The remaining amount (the portion above £1.5 million) | 12% |
What’s more, the stamp duty thresholds will be cut on 31 March 2025, meaning you will owe even more tax if you move after this date. The rules are slightly more generous for first-time buyers, so it is worth looking into this if you don’t already own a property.
You will also have to cough up for legal fees, moving fees and more. With this in mind, you should weigh up whether moving will actually save you as much money as you think.
3. Read up on inheritance tax rules if grandparents are paying
Increasingly, grandparents are getting involved in helping out with their grandchildren’s school fees. But there are some important tax rules that you should know about before making a decision.
The taxman has imposed 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 every year. However, anything above this limit is 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.
There are some exceptions to this. For example, 'gifts from surplus income' are not subject to inheritance tax – no matter how large the amount. To qualify, the giver must be able to prove that the gift has come from income rather than capital. What’s more, the gift must not impact the giver’s quality of life.
