How to afford private school fees - Times Money Mentor (2024)

Private school fees could rise by more than £50,000 over five years if Labour wins the next election, according to The Sunday Times. Here we explain how you can budget to send your children to a fee-paying schools and what help is available.

Parents who want to give their offspring the best educational start in life often consider private school but the fees can be eye watering. According to thedigital wealth manager Moneyfarm, you can expect to pay £800,000 on average for three children between the ages of five and 18 – a 6% increase on last year.

Parents are already going all out to afford their child’s education. This includes cutting back on holidays, changing shopping habits, selling their property and accepting help from grandparents. Now the Labour party is promising to levy a 20% VAT bill on fee-paying schools within the first year of government.

In this article, we cover:

• How much does private school cost?
• When should you begin planning for school fees?
• How can you fund private school fees?
• What help is there to fund private school fees?
• What can you do if you can’t afford private school fees any more?

Read more: The high-income child benefit charge: What you need to know

How much does private school cost?

How much you will pay for private school for each of your children will depend on a number of factors, including:

• Your child’s age
• The school itself
• The location of the school
• Whether your child will board full-time, part-time or attend day school

The majority of private school pupils attend day school. The fees at primary school level are £5,108 a term on average, or £15,324 a year, according to the latest census from the Independent Schools Council.

At secondary level, the average fees are £5,854 a term or £17,562 a year.

Private schools in London and the south of the UK tend to be more expensive than their counterparts in the north. The average cost of day fees per term in London is £6,250 compared to £4,500 in the north-west, according to School Guide.

How much does boarding school cost?

As you would expect, boarding schools are even more expensive. You can expect to pay just over £13,000 a term or £39,006 a year on average.

Even if your child does not actually stay at night but attends a boarding school as a day pupil, fees are typically more expensive at an average £7,297 a term or £21,891 a year.

The most expensive private schools in Britain in 2023 were for full boarding:

1. Brighton College – £64,920 per year
2. Concord College, Shropshire – £53,400 per year
3. Hurtwood House, Surrey – £52,227 per year

That’s not including registration and acceptance fees on top, which can be between £400 and £3,000.

Where are the most affordable private schools?

Meanwhile, the cheapest fee-paying schools still require the best part of £10,000 a year: examples include:

• Oak Heights Independent school in Hounslow, west London – £6,900 a year
• Wakefield independent school – £8,040

Notably, there is a subset of Christian fee-paying schools that offer the lowest price of all: Phoenix Academy in north London at just £2,940 a year leads the way.

Read more: How to save money on school uniform costs

How to work out how much private school fees will cost you

To figure out how much you will need to pay over your child’s school life, the website School Fees Checker offers a calculator to use. You can input your postcode or region alongside your child’s age to map out your school options and get an idea of the overall, long-term cost of fees.

Remember, school fees are a long-term commitment, so you need to realistically add a 5% fees increase a year to your sums.

Finally, it’s also important to factor in the ‘hidden’ costs of private education. These include school trips abroad, uniform and stuff for extracurricular activities such as sports gear and musical instruments.

When should you begin planning for school fees?

There are no rules about when you should begin planning but the sooner you can the better, when you consider the sums involved.

To send three children to a private day school between the ages of five and 18 will cost £800,000 on average, according to Moneyfarm.

“Such is the appeal of a private education, some families start putting money aside for school fees before their children are even born,” said Melanie Sanderson, managing editor of the Good Schools Guide.

For example, investing £500 a month from when your child is born until they reach 13 will build up a pot of £100,000 (based on 4.5% annual compound growth and charges of 0.75%).

At a school charging £20,000 a year this would cover a child up to the age of 18, while at a school charging £30,000 a year this would cover a child up to their GCSEs, allowing you time to raise extra cash for their A-level years if necessary.

Subscribers to the Times can read more: How to invest for your children

How can you fund private school fees?

There are a number of different ways to fund private school fees. Here are some ways:

• Income
• Inheritance
• Saving and investing
• Bursaries – means-tested and range from 5% to 100% of the fees
• Scholarships – often offered for academic excellence or in music, sport, drama, and art
• Children of armed forces personnel – get discounted fees at many private schools
• Remortgaging your home or downsizing to a smaller property to release funds
• Grandparents – may be able to help in a way that benefits their estate planning and reduces potential inheritance tax liability (see below)

Read how Justine is using a one-off lump sum of £50,000 from her mother to pay for her daughter Mia’s school fees. She is also saving £4,200 over seven years via an early payment discount of 0.5% and a 5% scholarship.

Picking and choosing the private school years carefully

If you live near an outstanding local primary school or state grammar, then you may want to consider those for part of your child’s schooling.

If changing to the private sector at 16 for the A-Level years appeals, for example, you will only need to fund two years of education.

How can grandparents help with school fees?

School fees are currently the biggest focus for wealthy grandparents who are wanting to financially help their adult children.

Almost 80% of high net worth individuals – people with assets of more than £250,000 – are still supporting adult children. That’s according to the Saltus Wealth Index report. Among them, two fifths were covering school fees for their grandchildren.

If you are a grandparent, there are several ways that you can help with school fees without incurring inheritance tax:

1. Annual exemption – everyone can give away up to £3,000 each tax year, which can be carried forward by up to one tax year (ie £6,000). It means that two grandparents who’ve made no previous gifts could give up to £12,000 in one go.
2. Seven year rule – you can gift as much cash as you like to your adult children during your lifetime without incurring IHT, as long as you live for more than seven years after making that gift. This is known as Potentially Exempt Transfers (PET).
3. “Regular gifts from surplus income” – these can be of unlimited value that will be exempt as long as they’re made out of your excess income, not from other sources of capital and don’t affect your standard of living. This may be an ideal option if you have a generous final salary pension that provides you with more than they need, for example.
4. Set up a bare trust with their grandchildren as beneficiaries – you can pay in up to £325,000 per person (the inheritance tax nil-rate band threshold) with the money counting as a PET. Trusts are complicated, so it is always best to speak to a professional.

Parental settlement rules

Parental settlement rules effectively tax the income on assets set aside for a minor child as if it were the parents own. Grandparents aren’t subject to the same restriction, explained Nick Ritchie, senior director of wealth planning at RBC Wealth Management.

“This means that funds can be set aside, generating some sensible return in the form of interest income or even dividends if the funds are invested.

“The trustees can utilise the child’s zero tax rate personal allowance and basic rate allowance on income up to £50,271 per year. This helps the funds accumulate more tax efficiently so that they might last longer and better match the costs of education.”

“The main downside of a bare trust is that the child has an absolute entitlement to the assets, usually at age 18. So a spendthrift beneficiary who is minded to access the fund could in theory run off with the excess.

“This is rare, so the risk is usually low, but by planning the initial gift amount, this risk can be tempered.”

What help is there to fund private school fees?

Almost a third of those educated at private schools receive financial assistance, in either the form of a scholarship or a bursary, according to The Good Schools Guide.

In recent years, there has been a shift from non-means-tested scholarships to means-tested bursaries and scholarships, data from the ISC shows.

Parents will be happy to learn that the total value of means-tested bursaries and scholarships has increased by more than £220m since 2011. This is a rise of 85%, compared to a rise of 45% of the total value of non-means-tested scholarships over the same period.

“The majority of these scholarships or bursaries comes from the school. They are means-tested and can be worth as little as the value of a few books or music lessons or as much as the full fees plus money to cover uniform and transport,” explained Melanie Sanderson.

Who can qualify for a bursary?

Some schools publish the income threshold for a family to be considered for means-tested bursaries.

For example, St Paul’s School in West London will consider any applicant with combined family income of less than £126,000. At nearby St Paul’s Girls’, the threshold is even higher at £140,000.

“Of course, any family with income approaching these sums would likely only receive the smallest of bursaries. No more than 10% of the fees. But for some, this can be the difference between your child getting your dream education or not,” explained Sanderson.

“Schools are always on the lookout for good candidates to receive the full, life-changing bursaries. But they also want to keep their school well-stocked with bright, hard-working children of professional parents who need a little help to make it possible.”

You’ll have to do your homework to see what’s available and adopt a “if you don’t ask, you don’t get” attitude. Information for London schools is available at feeassistancelondonschools.org.uk.

Manage your expectations

It’s truly only a small number who benefit from 100% fee remittance, so it is best not to make this your only plan when it comes to affording school fees.

Only 15.8% of those who receive means-tested bursaries and 9.4% of those who receive means-tested scholarships receive the full remittance; that’s a total of 6,400 pupils out of the 183,434 pupils who receive help with their fees.

Are private school fees tax deductible?

No. Some people think private school fees are tax deductible but they’re not.

School fees can’t be used to offset your tax bill but here are some easy ways to cut your tax bill.

Do private schools pay VAT and business rates?

All of the UK’s 2,600 private schools are exempt from VAT. On top of that, the 1,300 schools with charitable status pay no corporation tax or capital gains tax.

An estimated £1.7bn a year could be raised for state school funding if a future Labour government takes away this VAT exemption and business rates relief. That’s according to the Institute of Fiscal Studies.

Can I pay in advance to avoid VAT on private school fees?

Up to now, paying fees in advance has been a way for private schools to offer a discount.This is made possible because early payment of fees means a school can take advantage of charity tax relief.

When a lump sum is paid in advance for school fees, the school can invest this money and, if it is operated by a charity, get a tax-free return on it. This way the parent – or often the grandparent – paying a lump sum upfront gets a discount on termly fees.

Such paying-in-advance schemes could offer an opportunity to reduce the impact of VAT on school fees if the rules are changed by a future Labour government.

So, in theory, if a lump sum is paid in advance to a school before VAT becomes payable on school fees, no VAT is still payable, even though the paid-for education may cover several years.

“There’s been outsize interest from the press on fees in advance – compared with the very small proportion of parents who can afford this option,” said Sanderson.

“Fees in advance schemes are perfectly legitimate and have been used for a number of reasons through the years. For example, when a family has been left a legacy.

“It’s right that parents know all their options for paying fees and these sorts of advance payments are very explicitly not being marketed as a tax loophole. There is still a lack of detail around Labour’s policy and so schools cannot yet advise parents on any specifics around VAT and fees in advance.”

What can you do if you can’t afford private school fees any more?

Many schools have hardship funds that can be accessed by families who fall on hard times and can’t afford the fees.

Schools became well-versed in these kinds of discussions with parents during the first year of the Covid pandemic.

“Sudden changes in family circ*mstances, such as death or job loss, are impossible to predict. Neither parents nor schools want to see a child’s education disrupted so it’s important that both parties start talking to each other,” said Sanderson.

“Again, parents in such a situation need to make contact with the bursarial department as early as possible. With any luck, a plan can be put in place to address financial woes and keep the child at the school.”

Read more: How to create a family budget and stick to it