Half of parents/grandparents may move children out of private schools if 20% VAT is added to fees

Almost a quarter (24%) of parents/grandparents paying for children in private school would consider pulling children out of private education and moving them into state run schools if 20% VAT were added to fees. A further 23% said they had not yet decided what they will do. This is according to a survey of over 700 Wealth Club clients this week, all of whom are high-net-worth and sophisticated investors.

Labour has pledged to add VAT of 20% to private school fees and remove the Business Rate Relief exemption many private schools currently enjoy. This is expected to raise £1.5 billion in extra tax revenue, which will be used to recruit 6,500 teachers for state run schools as well as various other reforms to the education system.

Nicholas Hyett, Investment Manager at Wealth Club said:

“While removing the VAT exemption doesn’t necessarily mean that school fees will increase by the same 20%, it will likely see a widespread increase in fees. The reality is that a meaningful number of parents will struggle to pay those higher bills. That could see the tax raise generate significantly less revenue than expected.

According to the Independent Schools Council the UK independent sector educates around 620,000 children in the UK. Should 24% decide to leave the system that would see around 149,000 children entering the state system, which assuming an average class size of 30 children implies a need for another 5,000 or so teachers. In other words, a significant proportion of the additional teaching resource funded by the tax would be absorbed by those moving out of the private school system.

There are some steps parents can take to mitigate the pain, including asking for help from grandparents is just one example. That’s already common, of those Wealth Club clients paying school fees, 68.4% were grandparents. This could become even more common if fees rise, and is sensible from a tax planning perspective since gifts made from regular income are potentially free from inheritance tax.”