4 savvy options for funding rising private school fees

9 March 2025

If you have children or grandchildren who attend a fee-paying school, you will no doubt be aware that fees have risen in 2025.

Let’s take a look at why fees have gone up, the average price of private school fees today, plus five helpful options for funding these rising fees.

The government has removed the VAT exemption on fee-paying schools, among other measures

In the Autumn Budget for 2024, the government lifted the Value Added Tax (VAT) exemption on school fees, effective from January 2025.

20% VAT has now been added to most school fees across the UK.

The BBC says this move could raise £1.7 billion by 2030, which the government says will be used to hire 6,500 more teachers into state schools.

Prior to the government’s recent fee increases, school fees had been rising for decades

According to the Good Schools Guide, the most expensive boarding schools currently cost nearly £65,000 a year, whereas private day schools can charge as little as £3,900 a year. Even before the recent increases came into place, school fees had been rising steadily for some time.

The Institute for Fiscal Studies (IFS) reports that:

• The average annual fee as of 2022/23 was £15,200 in today’s money (with VAT applied, this figure would rise to just over £18,000).
• The percentage of children that attend private school has remained at between 6% and 7% for the last 20 years.
• School fees have seen a 20% real-terms increase since 2010, and a 55% real-terms boost since 2003.

As such, it’s not just the removal of the VAT exemption that has caused school fees to spike – these educational institutions have been raising prices to keep up with the overall cost of operations for many years.

But the truth remains that whatever your child or grandchild’s school normally charges, it’s likely that you’ve had to shoulder a sudden increase in fees since January 2025.

Here are four helpful options for covering the increase to private school fees.

1. Use surplus income

If you are a high earner and often have surplus income that you save or invest each month, a portion of this surplus amount could be put towards school fees.

In fact, this strategy might actually help you maintain your estate’s tax efficiency for Inheritance Tax (IHT) purposes.

For instance, if you have a high-value pension, several ISAs, and/or a healthy property or business portfolio, your wealth is likely to be subject to IHT when you pass away. This is especially pertinent after the chancellor announced changes to the IHT regime in the 2024 Autumn Budget; you can read our full article on the topic to find out more.

In any case, while it’s crucial to have a healthy foundation of investments and cash savings to your name, routing surplus income towards your child’s school fees may be suitable.

Rather than continuing to boost the value of your estate – much of which could be eaten up by IHT when you pass away – paying surplus income to your child’s school may be a more tax-efficient option.

2. Draw cash from your ISAs

Not everyone can fund rising school fees using monthly or annual income, and will need to instead draw from savings. There are plenty of tax-efficient options you could consider when drawing from capital sources.

One of these is to use your ISA wealth.

If you have funds split across one or several Cash ISAs and Stocks and Shares ISAs, for instance, you could draw from the Cash ISA to top up the amount you’re paying to your child or grandchild’s school. This route would be tax-efficient, because any funds you draw from your ISAs aren’t subject to tax. Using Cash ISA wealth first would also help you to remain invested within your Stocks and Shares ISA, rather than drawing from it, in order to benefit from long-term growth where possible.

Of course, it’s wise to discuss this funding option with a financial planner before you proceed. Your ISAs might become crucial to you in retirement, for instance, so depleting the wealth within these accounts could carry some risk.

Drawing from capital over a period of years could affect your long-term financial plan, so it’s always worth garnering a professional opinion.

3. Utilise all available tax breaks

Another way to make sure you can afford the increase to private school fees is to utilise available tax breaks in order to reduce your bill and free up funds.

You may be surprised to learn that many people overpay Income Tax and Capital Gains Tax (CGT) simply because they aren’t aware of the tax-efficient allowances and exemptions they can use.

Income Tax

You might believe your Income Tax bill is set in stone if you’re an employed individual who pays tax at source. But this may not be the case; there are ways to mitigate Income Tax for some earners.

For instance:

• If you’re married or in a civil partnership, and your spouse or civil partner earns less than the Personal Allowance of £12,570 a year, they can normally transfer a portion of their unused Personal Allowance to you, enabling you to earn more tax-efficiently. This is known as the “Marriage Allowance”.
• You could explore salary exchange options with your employer. Under these agreements, your employer pays into a benefits scheme – be it a pension, car lease, or another type of perk – on your behalf, which effectively reduces your salary. Of course, a lower salary means less Income Tax to pay, so your take-home pay could actually increase as a result. There are some pitfalls to salary exchange too. A lower salary may impact the amount you are able to borrow, such as mortgages and having a lower salary may affect some state benefits. Life cover may be also be effected if there is a reduction in salary, so it’s important to discuss this with your financial planner before acting.

Capital Gains Tax

Investors normally pay CGT on profits earned from the sale of non-ISA shares, business assets, and properties that aren’t a main residence or that are very large.

But remember, there are two key ways to reduce or even remove your CGT liability as an investor.

• Use your Annual Exempt amount of £3,000, which protects gains up to this amount from CGT.
• Offset capital losses against your CGT bill. Remember, you can usually carry forward any losses from previous years, even if you’re offsetting it against a gain made in the existing tax year.

If you begin strategically utilising tax breaks when disposing of assets and earning money, you could find yourself with more disposable income and perhaps use these funds to cover school fees.

4. Organise a payment plan with the school

Your child or grandchild’s school is likely to appreciate that for many parents, the sudden increase in fees may be difficult to cover immediately. To avoid an upheaval to the child’s schooling, educational institutions may allow feepayers to set up a payment plan.

There are also some external financing options that allow you to set up a loan in order to finance a child’s education.

However, as with all the above options, there are some risks associated with this. Repayments are likely to carry interest, meaning you may pay more overall. So, it’s worth discussing all the available routes with your financial planner and ensuring you can afford the avenue you choose over the long term.

Get in touch

Our financial planners are here to help you shoulder any increases to your expenses, allowing you to remain confident about your future.

Email info@depledgeswm.com or call 0161 8080200.

Please note

This article is for general information only and does not constitute advice. The information is aimed at retail clients only.

All information is correct at the time of writing and is subject to change in the future.

The Financial Conduct Authority does not regulate estate planning or tax planning. Levels, bases of and reliefs from taxation may be subject to change and their value depends on the individual circumstances of the investor.

The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested.