Lawyers Warn Trustees to Review Investment Plans in Light of New VAT on Private School Fees

Legal experts at Irwin Mitchell are advising trustees of trusts used to pay private school fees to prepare for the introduction of VAT on private school fees.

On 29 July, the Chancellor Rachel Reeves announced that VAT at 20% will be introduced on private school fees from 1 January 2025.

This new regulation will have several implications for trusts paying school fees for beneficiaries.

• Increased Costs: Trusts will need to account for the additional 20% VAT on school fees, which will increase the overall cost of education. Trustees must manage and allocate the trust fund to afford these increased costs effectively.
  
  
• Tax Planning Strategies: Trustees may need to revisit their tax planning strategies to ensure they can cover the increased costs. This might involve adjusting the trust’s investments or distributions.
  
  
• Top-Up Requirements: Settlors (parents or grandparents) who initially set up the trust fund will need to assess whether they need to top up the trust fund to cover the additional costs. They must also consider the impact of such top-ups on their overall financial planning.
  
  
• Trust Structure Review: The structure of the trust might need to be reviewed to ensure it remains tax-efficient under the new VAT rules.

Expert Opinion

“It was generally expected that these VAT changes would not apply until at least September 2025. Bringing forward the VAT implementation by at least nine months will be unwelcome news for private schools and parents and these changes will require careful planning to manage the impact effectively. Trustees would be wise to review and potentially adjust their investment strategies to ensure sufficient funds are available to cover the increased costs.

“With a new Government in place, this is unlikely to be the only change we’ll see that affect finances. It’s important to get the right professional advice on how best to prepare for the changes we might see announced in the coming months.” Ian Bond, Lifestyle and Estate Planning Partner