Choosing a private education is a significant and lengthy financial commitment which requires careful consideration and planning. Private school fees in the UK continue to rise at rates above inflation. According to the Independent Schools Council's 2024 report, average fees per term at member schools saw annual increases of 9.0% and 8.8% for boarding and day schools respectively, to £14,175 and £5,908.

Along with this general increase in costs, many parents with children at private school will also be aware that The Treasury has announced that 20% in VAT will be added to private school fees from January.¹

Considering the impact

It’s apparent that schools are under pressure to keep fees as low as possible, whilst also keeping up in the race to recruit the best possible teachers, compete with other schools and to meet parental expectations – many of whom are making huge sacrifices to afford the cost of a private education.

There has been extensive debate already among all stakeholders about the profound impact the additional 20% in VAT will have; to parents, children and even to grandparents, as well as to the schools. Many families may find it challenging to cover costs from their income alone.

There are different ways to cover the cost of school fees. Importantly, and particularly in a rising fee environment, parents need to look at their full financial circumstances and prepare for the financial commitment in the most thorough way possible. This means looking at areas such as savings, monthly income, mortgage costs, portfolio investments, property and expenditure.

While a range of funding sources exist to help, such as investment portfolios, the role that property can play may be fundamental.

Using property assets

One option, for instance, could be to remortgage a primary residence. This could be a viable option for a family with substantial equity in their property, and sufficient income to cover the monthly repayments.

Some families might be lucky enough to have grandparents in a position to help with school fees. While a relatively new and small part of the market, retirement interest-only (RIO) mortgages have become an increasingly common option for older people looking to release equity in their homes as part of wider financial and inheritance tax planning.

RIOs can be an attractive alternative to selling down investments and shares and when borrowers have one, if not multiple, sources of income to service interest payments.

Importantly, a RIO mortgage allows a person to protect their equity. While they will initially pay a higher rate of interest than is charged on, say, an equity release mortgage, they may well pay less interest in the long term.

As always, it’s important to take advice and to understand the risk that your home or property may be repossessed if you do not keep up repayments on your mortgage.

Borrowing against an investment portfolio

Another option may be through portfolio lending. This allows usually affluent and high net worth clients to borrow against their investment portfolios while remaining invested in the market.

Liquidating investment portfolios can often result in tax liabilities, making it unattractive and, potentially, unnecessary in certain circumstances.

In contrast, portfolio lending can be an appealing option for people looking to access cash without borrowing against property or other collateral, or selling underlying investments.

Fees likely to rise at or above similar rates to core inflation

Over and above the addition of VAT, private school fees are expected to continue to rise at or above similar rates to core inflation. Moreover, costs for universities are also likely to rise over the long term, which is an additional burden for many parents to bear.

As such, the need for effective financial planning is a must. We work closely with other professional advisors, including wealth managers, mortgage brokers and solicitors, to help our clients gain a clear understanding of their full balance sheet and funding options.

If you would like to know more or to discuss your options, please get in touch.

Mark Prentice is Head of Private Banking, Scotland

^{1. Revenue and Customs Brief 8 (2024): removal of VAT exemption for private school fees and boarding fees - GOV.UK (www.gov.uk)
Security may be required. Product fees may apply. Subject to status. Your home or property may be repossessed if you do not keep up repayments on your mortgage. Over-18s only. Terms and conditions apply.}