4 clever ways to fund the rising cost of private school fees

Private school fees are on the rise due to inflation and the introduction of VAT. Find out four ways to fund these increasing costs and protect your child's education.

If you have school-aged children, you might have noticed the sharp rise in private school fees over recent years.

As reported by Money Week (January 2025), data from the Independent Schools Council (ISC) shows that average fees rose by 8% in the 2023/24 academic year, with day schools charging an average of £18,000 a year, and average boarding school costs reaching £42,500.

These increases are largely due to higher inflation and changes to the Teachers’ Pension Scheme.

What’s more, in the Autumn Budget, chancellor Rachel Reeves announced that Value Added Tax (VAT) would be applied to private school fees from 1 January 2025.

While not every school will pass on the full 20% VAT charge to parents, many may have to. A 20% lift could push average day school fees to £20,520.

So, if you’re keen to keep your child in their current school, read on to discover four clever ways to fund the rising costs of private education.

1. Invest for income

Investing may already be part of your long-term financial plan. For example, you might have built a diversified portfolio to help you accumulate the wealth you need for retirement.

Or perhaps you don’t currently invest at all.

Either way, if you’re looking for ways to fund your child’s education, it’s worth considering investing for income.

This might include:

• Buying bonds or gilts
• Investing in dividend-paying shares
• Generating a rental income from property.

Each option has unique pros and cons. For example, investing in bonds and gilts typically carries a lower risk than other types of investments, such as stocks. However, you could face penalties if you withdraw your money before the end of the fixed term.

Similarly, property investments can be an excellent way to generate an income, but this comes with its own risks and you may not make gains straight away.

So, you might benefit from speaking to a financial planner who can help you align your investments with your financial goals and attitude to risk.

While all investing carries an element of uncertainty, the potential returns could reduce or offset any increases in your child’s school fees.

2. Explore the school’s fee payment and assistance options

Some private schools offer a “fees in advance” option which allows you to pay several years of tuition upfront. In some cases, this could reduce the overall cost of your child’s education, as there are often discounts for prepaying.

Additionally, if you have the means to pay fees in advance, this could give you the peace of mind that your child’s education is protected for some time, no matter how your financial circumstances change in future.

Many schools also offer scholarships, bursaries and discounts to eligible pupils. According to the ISC (2025), one-third of pupils at ISC schools pay reduced fees and about 6,000 pay no fees at all.

So, it’s worth contacting your child’s school to check whether you’re eligible to apply for financial support.

3. Make the most of your tax-efficient savings

If you’re overpaying tax on your savings and investments, these funds could be put to much better use in supplementing your child’s education costs.

For instance, ISAs offer a tax-efficient way to save and invest as any interest or returns you earn are free from Income Tax and Capital Gains Tax (CGT).

In the 2024/25 tax year, you can contribute up to £20,000 across all your adult ISAs tax-efficiently.

There are four main types of adult ISA:

• Cash ISA
• Stocks and Shares ISA
• Innovative Finance ISA
• Lifetime ISA (LISA).

You can spread your £20,000 annual allowance across these different types of ISAs however you choose, provided that you do not exceed the £4,000 annual limit (2024/25) for LISAs. You must be aged 40 or under to open a LISA.

Indeed, using your full ISA allowance each year could allow you to make valuable tax savings, freeing up more money for your child’s school fees. Additionally, if you’re married or partnered, you could combine your individual ISA allowances and save up to £40,000 a year tax-efficiently.

You might also want to open a Junior ISA (JISA) for your child. You can contribute up to £9,000 (2024/25) a year to a cash JISA or Stocks and Shares ISA – or spread this allowance across both types. Paying into a JISA does not affect your individual ISA allowance. 

In contrast, if you hold savings or investments outside an ISA, this wealth may be subject to Income Tax, Dividend Tax and CGT if it exceeds certain thresholds.

A financial planner can help ensure that your savings and investments are as tax-efficient as possible. You may then be able to channel more of your wealth into funding your child’s school fees.

4.  Talk to your family about the possibility of financial support

Doting grandparents may be eager to offer support to you and your family.

What’s more, contributing to your child’s school fees could be a tax-efficient way for your parents or your partner’s parents to pass on their wealth to the next generation.

Usually, Inheritance Tax (IHT) is payable on the amount of an individual’s estate that exceeds the nil-rate band and residential nil-rate band, which the government has frozen at £325,000 and £175,000 respectively until 2030.

However, your child’s grandparents could use their annual gifting allowances and exemptions to pass on some of their wealth during their lifetime, without incurring IHT.

For example, the “gifts out of surplus income” rule allows an individual to pass on money from their income tax-efficiently. And theoretically, there is no limit to the amount of money your grandparents could gift in this way, provided that:

• Payments are made regularly, rather than as a one-off gift
• The person giving the gift can maintain a reasonable standard of living while making the payments
• Payments are made from income, rather than from capital assets.

By contributing to your child’s education in this way, their grandparents could also reduce the size of their estate for IHT purposes. As such, you and your children may face a lower IHT bill if you receive an inheritance from them in the future.

Additionally, your child’s grandparents can enjoy seeing your family benefit from their wealth during their lifetime.

Get in touch

If you’re concerned about covering the cost of your child’s private education, I can help you review and adjust your financial plan to account for rising private school fees.

To find out more, please get in touch by email lottie@truefinancialdesign.co.uk or call 03300889138.

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 estate planning or 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.