School Fees Planning Calculator

Yes. From 1 January 2025, private school fees in England are subject to 20% VAT. This applies to tuition fees for compulsory school age pupils, with some exceptions (e.g., sixth form, extracurricular activities). The VAT adds significant cost — £20,000 fees become £24,000 inc. VAT.

Grandparents with lower income pay less tax on the income used to fund fees. For example, a basic rate (20%) grandparent needs less gross income to fund fees than a 45% additional rate parent. Payments made regularly from surplus income may also qualify as 'normal expenditure out of income' — immediately outside the grandparent's estate for IHT.

Some employers offer school fee salary sacrifice schemes, reducing gross salary and saving income tax and NI on the sacrifice amount. This is less common than pension salary sacrifice but the same principle applies. The school fees are a taxable benefit in kind, but the NI saving on the sacrifice can still provide net savings.

Yes. Drawing pension tax-free cash (25% of the pension fund, up to the £268,275 Lump Sum Allowance) provides cash without income tax. Careful planning of drawdown can optimise the mix of tax-free and taxable pension income to fund school fees at the lowest overall tax cost.

Accumulation and maintenance trusts (before the 2006 changes) were specifically designed for this purpose. Modern trusts are less tax-efficient, but a bare trust or absolute trust for grandchildren can allow investment growth to be taxed at the child's (usually lower or nil) income tax rate, providing a tax-efficient fund for fees.

Employer-provided educational benefits for employees' children are generally taxable BIKs (ITEPA 2003 s.211). There is a limited exemption for employer-funded vocational training (not applicable here). The BIK is based on the cost to the employer.

A pupil at a school charging £20,000/year (exc. VAT) would incur: £24,000/year inc. VAT, £168,000 over 7 years, £336,000 for two children. State school is free. Tax-efficient funding can significantly reduce the effective cost — particularly for higher rate taxpayers using grandparent income or pension tax-free cash.

School fees don't directly affect child benefit entitlement. However, if higher earner income exceeds £60,000 (2025-26), the High Income Child Benefit Charge begins. If fees are funded via pension contributions that reduce adjusted net income below £60,000, child benefit can be restored.