Private school fees have become front page news, with the newly-elected Labour government pledging to add VAT to costs.
Fees now cost an average of £18,000 a year, and with Prime Minister Keir Starmer promising to add 20% to school fees by 2025, the cost is set to rise even further. According to research from wealth manager Saltus, this could force a quarter of children out of private education.
According to the annual census from the Independent Schools Council, school fees increased 8% for the 2023-24 academic year, bringing the cost of sending a child to a private day school to £18,000 a year on average. Once VAT is added, that cost will jump more than £3,600 to £21,600.
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As a result, increasing numbers of educational institutions have started accepting prepaid school fees from parents. This shift towards prepaid fees can offer several benefits, but also comes with its own set of risks.
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Benefits of prepaying for private school fees
VAT exemption is the most immediate benefit of advance payment. The new Labour government plans to remove the VAT exemption and business rates relief for private schools, with the intention of redirecting funds into state schools, but has not said exactly when it will be introduced.
It is unlikely it will be in the middle of an academic year, so the most likely date is September 2025. This means parents would still have time to prepay without attracting additional VAT charges, although Alice Haine, personal finance analyst at Bestinvest, warns that the timing so far on this has been “vague”. More details will likely come at the next Budget.
David Gage, partner and head of VAT at financial planners Old Mill, says: “Given the average cost of sending a child to private school is currently £6,021 per term or £18,064 per annum, paying before the VAT exemption is removed could translate into savings of more than £3,600 a year.” He warns, however, that “fees might later be taxed at the time of service delivery rather than the time of payment”, meaning that prepayment might not swerve the VAT rise.
Financial stability is another benefit and, by securing the education costs up front, parents can avoid the uncertainty of yearly fee increases and budget more effectively.
A further advantage is the possible discounts on offer from prepaying. Gage says: “Many schools offer discounts to parents who choose to pay their fees in advance. This can be a financially advantageous option, reducing the overall cost of education.
“Additionally, early payments help ensure your child’s place at the institution, providing peace of mind that your child’s educational path is secured.”
Regarding discounts, Sarah Coles, head of personal finance at Hargreaves Lansdown, adds: “Most schools offer discounts for siblings or staff members, and some have lower fees if you do specific jobs, such as the clergy or armed forces.”
So, what are the risks of paying school fees in advance?
Financial exposure. The primary concern for parents considering prepaid fees is the risk of the school’s insolvency. It is imperative that you look into the school’s financial stability and history.
Should the school face financial difficulties and close, says Old Mill’s Gage, “prepaid fees might not be refundable, leading to a potential total loss of the prepaid amounts. It’s crucial to assess the financial stability of the school before opting for prepaid fees”.
Inflation is another factor that needs to be considered. If inflation rates increase but the fees have been locked in at a lower rate, the school might struggle to cover rising operational costs, adds Gage, “potentially affecting the quality of education or leading to additional charges later”.
