New tax plans target private schools and social care

In her first detailed tax announcements as Chancellor, Rachel Reeves targeted both those starting off in life and those approaching the end of their lives.

School fees
From 1 January 2025, private school fees will be subject to the standard rate of 20% VAT for the cost of tuition and boarding, if provided. A private school is defined as one that provides full-time education for pupils who are of compulsory school age but under 19 years old. Nurseries will remain exempt.
 
While the additional cost may be a minor annoyance for parents who can afford to send a child to some of the elite private schools, it may affect others more:

• Middle-class parents paying private school fees for two or three children at the average UK cost of £15,000 will see fees increase by around £3,000 per child annually.
• Prepaying school fees to avoid the VAT charge will fail as fees invoiced or paid on or after 29 July 2024 (the day of the announcement) for school terms after 1 January 2025 will be subject to VAT.

The exact percentage fee increase will vary between schools. While schools will be able to offset costs through VAT-deductible goods and services, private schools that are charities will no longer qualify for charitable business rates relief.
 
The government’s technical note explaining how private school fees will be subject to VAT can be found here.
 
Social care cap
The Chancellor also announced the scrapping of the social care cap, which means those with savings over £23,250 will have to continue to pay the full cost of their care, even if bills run into six figures. The previous government planned to cap care costs at a lifetime limit of £86,000 from October 2025 after long delays to the plans.
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The NHS website provides information on self-funding social care here.