How to pay for your child to go to private school

There are over 2,500 independent schools in the UK, educating over 620,000 pupils. With inflation-busting increases to costs in the last few years, and the VAT exemption for private schools ending from January 2025, parents who are thinking about private school need to get started on their plans to fund it.

Average fees for a non-boarder are £18,064 a year in today’s money, while London comes in pricier than the UK average at £22,000 a year for day school.

Labour estimates the net cost for most schools of losing their VAT exemption will be 15%. It’s up to each school how much of that cost increase they absorb and how much they pass on to parents.

Assuming schools pass on the entire 15%, parents will need to find £20,700 a year on average. For a child born today and assuming a modest increase of 3% a year, that’ll be:

• £28,650 when they reach state secondary age (year 7 or age 11), or
• £30,400 when they reach age 13 and year 9, the age that most independent senior schools start.

This equates to a pot of £220,000 at age 11 through to sixth form or £161,400 with a later start at age 13. These fees don’t cater for extras such as uniform, sports gear, trips and music lessons.

How to get to £220,000

The simplest way to invest in a school fees pot is to make use of a tax-free ISA and the £20,000 annual allowance. Although we often talk about Junior ISAs when investing for children, they can’t be accessed until the child reaches age 18 and the money becomes their own.

History suggests the stock market has the best chance of delivering above-inflation returns over the long-term versus cash, so we’re assuming a Stocks and shares ISA is used. Parents would need to put away £1,160 a month from birth to get a target tax-free pot of £220,000 when that child reaches age 11, or £675 a month until 13 if they wait another couple of years to start private senior schools. That assumes a 6% annual investment return after charges.

The good news is that parents can open multiple ISAs of the same type now, provided they stay within the overall £20,000 ISA allowance. This means a parent could have a Stocks and shares ISA earmarked as their ‘school fees pot’, all wrapped up free from tax, with head room to make use of the rest of their allowance for other long term tax-free investments.

Grandparents can help too

Not everyone has over £1,000 spare a month to put away, but there might be grandparents or other family members who want to help towards the private school goal.

If a lump sum is available, a trust could be considered with the grandchildren as beneficiaries. Money added to the trust reduces the value of their estate for inheritance tax but still gives a degree of control versus an outright gift to a child.

If the money is being used for the beneficiaries (grandchildren) then it can be accessed before they reach 18, which is ideal for school fees.

Trusts can be tax-efficient where the beneficiaries have their own tax allowances available. A trust would not have the same potential tax benefits if set up with money from the child’s parents though – thanks to this sneaky tax rule.

Trust taxation is complex and anyone thinking of going down this route should take financial and/or legal advice on the best type of trust for their needs.

Instead of a lump sum, grandparents can also make regular gifts from excess income that will be exempt from inheritance tax. They’ll need to keep good records to evidence that the gifts from income are not reducing their standard of living.

You could use the regular gifts towards school fees directly when the time comes or get started early and use them to fund that investment pot goal.