The first budget of Keir Stamer’s government provided lots to unpack but one announcement perhaps shouldn’t have come as a surprise – Private school fees were rooted to the Labour Party’s election campaign and many will need help adapting their finances to meet the additional cost if they currently have, or plan to have, children in private education.
Currently, private schools in the UK benefit from charitable status, which exempts them from charging VAT on fees.
By introducing VAT on 1 January 2025 at the standard rate of 20% on private school fees, Labour aims to generate additional revenue that could be reinvested into the state education system.
The Labour manifesto estimates this policy could raise over £1.5 billion[1] of funds that could be used to improve facilities, hire more teachers, and enhance educational resources in state schools.
The introduction of VAT on private school fees would undoubtedly have a significant impact on both the institutions and the families who use them. For many parents, the additional cost—potentially thousands of pounds per year—could make private education unaffordable. This could lead to a reduction in private school enrolments, with some students transferring to state schools, thereby increasing demand on the state sector.
Critics of the proposal argue that the policy could harm middle-income families who make significant financial sacrifices to afford private education. They also warn that an influx of students from private schools into the state system could overwhelm state schools, particularly in areas where state schools are already under pressure.
When it comes to securing a financial future for your children, there are a variety of savings and investment options available.
These options range from simple savings accounts to more complex investment vehicles, each with its own set of benefits and risks. Understanding these choices can help you make informed decisions that align with your financial goals and your child’s future needs.
Key considerations in determining which structure can help you save for your child’s school include:
Below, we share some of the common saving vehicles available which may help with funding your child’s education and other saving needs. This is a guide only and suitability will depend on individual circumstances:
| Arrangement | Owner | Child gains control at 18 | Taxation | Cash-based or investment | Administration | Type of contribution | Maximum |
|---|---|---|---|---|---|---|---|
| Savings Account | Child | Yes | Child | Cash | Minimal | Regular or lump sum | N/A |
| NS&I - Premium bonds | Child | Yes | Exempt | Prize | None | Regular or lump sum | £50,000[2] |
| Junior ISA | Child | Yes | Exempt | Cash or investment | None | Regular or lump sum | £9,000[3] |
| General Investment Account | Parent | No | Parent | Cash or investment | Minimal | Regular or lump sum | N/A |
| Bare Trust | Trust | Yes | Child or Parent | Cash or investment | Consideration | Lump sum | N/A[4] |
| Discretionary Trust | Trust | No | Trustee | Cash or investment | Consideration | Lump sum | £325,000[5] |
The amount saved into an account for a child is considered a gift for inheritance purposes.
If amounts saved into an account for a child by their parent earns annual income of more than £100, the entire income as well as any gains realised will be taxable on the parent.
WTW has experienced financial planners available to help you plan for your child’s school fees and future, please contact us for a free initial consultation to see how we can help and support you.
The above views are based on the information available to us at this time and are likely to change as and when more information is provided by the new Labour government.
