Will VAT on private schools affect the property market?

One of Labour’s main promises on election was to end the tax break on private school fees, adding a 20% increase onto private school fees (except for ECHP students who are exempt). In a back-to-school housing market, buyers are more aware than ever of the importance of finding a home location close to good state schools, and as a result how competitive this can be. Therefore, increased expenses for private schools could potentially throw the housing market into some uncertainty.

In this blog post, we will break down what the VAT plan is exactly and when it will be implemented, and also how it might affect the housing market.

What the VAT policy entails

An overview of the policy

The government announced plans to impose VAT on private school fees to fund improvements in public education. The current exemption from value-added tax (VAT) will be removed to fund 6,500 new teachers in England. VAT at the standard rate of 20% will be added to private school fees starting 1 January 2025. Additionally, any fees paid from the 29^th July that pertain to the term starting from January 2025 onwards will also be subject to VAT.

Exemptions

It is important to note that there will be some exemptions within this new policy. The stated intention is for nurseries to remain exempt, with only the fees of children in the first year of primary in a private school upwards taxable. As mentioned before students with special educational needs or a medical condition in which their ECHP specifies a certain private school also be exempt.

How this policy could affect the housing market?

Increased demand for homes near high performing state schools

As the costs of private school fees increase, many families might find that they cannot afford the tuition anymore and will choose to send their children to state schools. This could result in many parents opting to move house this autumn ahead of the VAT being implemented in the new year. As a result, buyers looking for a home based in a catchment area may need to start looking sooner to get ahead of the competition.

Potential increase in house prices in catchment areas

Properties near schools with high Ofsted ratings are already extremely popular for buyers with children. As more families seek alternatives to private schooling, this could lead to higher competition and potentially an increase in price for homes in these desirable areas. This could mean for those looking to sell their home, this could be an opportune time to put it on the market if their properties are located in highly sought-after catchment areas.

Reduced appeal of living near private schools

For some buyers, proximity to private schools is a significant factor when purchasing a home. If private school enrolments decline due to higher fees, the appeal of living near these schools may diminish, potentially leading to a decrease in property values in these areas. The positive of this could be for prospective buyers without children, as it could bode availability of more affordable properties for them.

If you are looking to buy or sell and would like to find out how this new Private School VAT policy might affect you, contact your local branch today to discuss with one of our property experts.