The new government is pushing ahead with its drive to impose value-added tax, aka sales tax, on the UK's private education system.

The ruling Labour Party will press on with imposing a 20 per cent value-added tax on fees for the UK’s private schools, which educate about 7 per cent of all youngsters in the country. King Charles III confirmed this in his speech to lawmakers yesterday. 

The monarch issued his speech outlining proposed legislation by the government, as is customary in the UK’s political system at the start of a new legislative term. 

One of the pledges that Sir Keir Starmer’s party made in the approach of the 4 July election was to end the VAT exemption for private school fees. (In the UK, private schools are confusingly known as public schools.) Labour says that private education entrenches class privilege; supporters of such schools say they compete with what would otherwise be a stifling state-run school monopoly, and that parents using these schools have already paid for education out of their taxes, so a double-hit is unfair. 

One criticism made of ending VAT relief is that the wealthiest parents will continue to send their children to these schools, while less affluent families will not do so, arguably adding to inequality, not reducing it. 

The move on VAT adds to other actions taken by Starmer’s administration to go after what it says are unfair tax practices, such as the UK’s resident non-domicile system, now due to be abolished by Chancellor Rachel Reeves. (The previous Conservative government also pledged to axe the non-dom system.)

"The King's Speech included confirmation that the new Labour government will remove the exemption from VAT currently enjoyed by private schools, albeit there was no indication of the effective date of the legislation,” Caroline Miller, head of private client business at UK law firm Wedlake Bell, said. “It will depend on individual schools and their financial health as to how much of this additional cost, if any, will be passed on to parents; however, affected parents are likely to want to start planning now for increased fees.”

"Providing additional funds for school fees could be achieved by lifetime giving, from grandparents for example, as part of an overall tax-efficient succession plan to pass on wealth to the next generation. Gifting can involve the use of trusts for grandchildren, and specifically education trusts which can be used to provide funds for school fees and take advantage of specific inheritance tax exemptions,” Miller said. 

"It is possible that internationally mobile parents, who are often non-UK domiciled individuals, may now look at alternative education options overseas in jurisdictions where school fees can be lower (Dubai is often one example), and this will be a factor in their overall decision whether to stay in the UK following the announcement in the Spring Budget 2024 that the tax regime for non-UK domiciled individuals will become less generous from April 2025, a policy that the Labour government is known to support,” Miller added.

Sarah Jane Boon, a partner in the family team at law firm Charles Russell Speechlys, said: “Parents of children at independent schools will be used to regularly assessing the affordability of school fees against their finances – school fees have increased ahead of inflation for the past 25 years – but families could now be hit with significantly increased fees as soon as the next academic year.”

“This possibility may be especially worrying for separated or divorced parents, who are committed to a court-imposed obligation to discharge school fees until their children reach the end of their secondary education. If Labour do form the next government, there may be increasing numbers of parents who seek to vary their court obligations on the grounds of affordability,” Boon said. 

“Separated couples often struggle with funding two households on divorce. The decision as to where children are educated falls to both parents to be agreed under their parental responsibility, so disagreements over such issues can lead to litigation – with the court making the ultimate decision,” Boon added.