As a parent, you no doubt want to ensure your children receive the best education possible.
A positive school experience can provide crucial academic and personal development opportunities that equip your child for a successful and fulfilling life.
Yet, the cost of private education is on the rise.
Let’s take a look a look at why and explore four clever ways you could fund these escalating costs.
Private school fees rose 22.6% in the last year
In her 2024 Autumn Budget, chancellor Rachel Reeves announced that the Value Added Tax (VAT) exemption on private school fees would be lifted from 1 January 2025. As a result, parents could face a potential increase in costs if schools chose to pass any or all of this 20% tax charge on to families.
Unsurprisingly, this policy change came as unwelcome news to parents of children at fee-paying schools. However, in June 2025, the Guardian reported that the High Court had dismissed legal challenges to the change. As such, the VAT charge remains.
Many parents have already seen their expenses rise. A recent report by the BBC revealed that the average termly fee for a day school in January 2025 was £7,382 (including 20% VAT), compared to £6,021 in January 2024. This represents a 22.6% increase.
However, while the addition of VAT hit the headlines, this change is not the only reason why private education has become more expensive in recent years.
Persistently higher-than-average inflation may also have played a part. Additionally, changes to the Teachers’ Pension Scheme (TPS) mean that many schools have seen their employer contributions rise.
All of which means that funding a private education for your children requires careful financial planning.
4 clever ways to fund rising school fees
Whether you already have children who are in school or you’re planning for the future, there are several ways to cover the cost of rising fees.
1. Make the most of tax-efficient savings
If you have children who aren’t yet school age, using your full annual ISA allowance could be a tax-efficient way to save for future fees.
You can contribute up to £20,000 (2025/26) each year across all your adult ISAs, and any interest or returns you earn are free from Income Tax and Capital Gains Tax.
These tax savings could free up valuable funds for your children’s education.
You could also set up a Junior ISA for your child and contribute up to £9,000 (2025/26) a year – this does not affect your personal ISA allowance.
If you already have children in school, you might want to consider drawing on your ISA savings and investments to help cover rising fees – any withdrawals you make won’t count towards your taxable income.
Using your Cash ISA wealth first could allow you to leave the money invested in your Stocks and Shares ISA to benefit from any potential growth.
2. Explore financing options, school payment plans and bursaries
There are several school fee finance providers who could help you spread the cost of your child’s education. This usually works in the form of a loan. In other words, you pay the provider monthly by direct debit, and they ensure that the school receives the full fees.
While this might help you with budgeting, it’s likely that there will be interest to pay on the loan. As a result, you may end up paying more in fees overall.
Alternatively, speak to the school about their payment plans. Some offer discounts if you pay several years of “fees in advance”.
There may also be scholarships and bursaries available if your children are eligible. According to the Independent Schools Council (ISC), a third of pupils at ISC schools pay reduced fees and about 6,000 pay no fees at all.
3. Consider using trusts
Trusts can offer a tax-efficient way for grandparents to pass on their wealth by contributing to their existing and future grandchildren’s educational costs.
Any assets taken from a trust set up by grandparents for their grandchildren’s fees will usually be taxed at the child’s rate. Assuming they have little or no other income, your child may be entitled to a tax credit equal to the funds withdrawn.
In contrast, if you set up a trust for your children’s schooling, any funds you use before your children turn 18 may be taxed at your rate of Income Tax.
So, if you have parents who are keen to support you and your children, it may be worth discussing finances as a family and setting up a trust.
There are several types to choose from, each with its own rules, tax implications, advantages, and potential drawbacks.
As such, you may benefit from speaking to a financial planner who can help you choose a trust that meets your needs and ensure that it is set up correctly. Doing so could result in significant tax savings.
4. Seek financial advice
A financial planner can help you and your family navigate complex financial planning matters such as setting up trusts.
They can also ensure you manage your wealth as tax-efficiently as possible by using all the exemptions and allowances available to you. For example, if you have investments, such as non-ISA shares or business assets, you could reduce your Capital Gains Tax liability by using your Annual Exempt amount of £3,000 (2025/26).
Staying as tax-efficient as possible could free up funds to pay for rising school fees without compromising your long-term goals.
Get in touch
If you’re facing escalating school fees, either now or in the future, we can help you adapt your financial plan to account for these additional costs.
To learn more about working with us, please email hello@sovereign-ifa.co.uk or call us on 01454 416653.
Please note
This article is for general information only and does not constitute advice. The information is aimed at retail clients only.
All information is correct at the time of writing and is subject to change in the future.
Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.
The Financial Conduct Authority does not regulate tax planning.
The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.
Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.
Approved by Best Practice IFA Group Ltd on 14/07/2025