VAT on Private School Fees – Reviewing Investment Plans

On 29 July, the Chancellor Rachel Reeves announced that VAT at 20% will be introduced on private school fees from 1 January 2025.

This new regulation will have several implications for trusts paying school fees for beneficiaries.

• Increased Costs: Trusts will need to account for the additional 20% VAT on school fees, which will increase the overall cost of education. Trustees must manage and allocate the trust fund to afford these increased costs effectively.
   
• Tax Planning Strategies: Trustees may need to revisit their tax planning strategies to ensure they can cover the increased costs. This might involve adjusting the trust’s investments or distributions.
   
• Top-Up Requirements: Settlors (parents or grandparents) who initially set up the trust fund will need to assess whether they need to top up the trust fund to cover the additional costs. They must also consider the impact of such top-ups on their overall financial planning.
   
• Trust Structure Review: The structure of the trust might need to be reviewed to ensure it remains tax-efficient under the new VAT rules.

It was generally expected that these VAT changes would not apply until at least September 2025. Bringing forward the VAT implementation by at least nine months will be unwelcome news for private schools and parents and these changes will require careful planning to manage the impact effectively. Trustees would be wise to review and potentially adjust their investment strategies to ensure sufficient funds are available to cover the increased costs.

With a new Government in place, this is unlikely to be the only change we’ll see that affect finances. It’s important to get the right professional advice on how best to prepare for the changes we might see announced in the coming months.

For more information contact our lifestyle and estate planning team.