VAT on School Fees: Will It Push House Prices Up?

The new government has confirmed that VAT will be added to private school fees very soon. In this article, we look at what this might mean for house prices in areas with good state schools, and for house buyers and sellers there.

What’s happening?

In their election manifesto, Labour said they would add Value Added Tax to the fees of private schools which, previously, have been exempt.

Just recently, it has been confirmed this will indeed happen. Any bills for private school education from 1 January 2025 onwards will have 20% VAT added to them. This includes fees paid in advance for 2025 and boarding fees. (Don’t worry if you have children in nursery school. It doesn’t apply to nursery school fees.)

All this is expected to be confirmed in the next Budget at the end of October. (Exact details haven’t been finalised yet, so this might be subject to change.)

Experts predict it’s possible this move will push house prices up in areas with good state schools.

Do school catchment areas really affect house prices?

Savvy parents (and would-be parents) have known for years that there are some great state schools across the country. Many have exam results that are right up there with the best private schools. So, if you live in one of those areas (or move into one) your child can get a great education without paying any school fees at all.

Several surveys suggest that good schools do push house prices up in the area.

* A Department for Education report (2017) found that house prices near the best schools are 7 – 8% higher than in the surrounding area for both primary and secondary schools. 

* A Knight Frank analysis (2021) suggests properties near Ofsted-rated outstanding primary schools cost 11% more on average.

In some areas, price differences could be much more or could be less. Ask an estate agent if you’re thinking of buying or selling and want to know about prices in their area.

Why VAT on school fees could push house prices up

This is hard to call, but it is perfectly possible that house prices in areas with good state schools will rise because of the new 20% tax.

While very wealthy parents may be able to afford the new, higher private school fees, those already struggling to pay them might not be able to. It’s not unlikely that many will look at moving into areas with good state schools. If this pushes up demand for property there then, yes, prices are likely to rise.

There are a few buts…

Like most things concerning house prices, it is not that simple!

Not all private schools will add 20% to their fees immediately. Some have already said they will absorb some or all of the cost, at least for now.

Also, catchment areas for state schools are something of a black art. Some measure them to the millimetre (at least it seems like that sometimes), and you won’t get a place if you live outside it. Others are more flexible. Not all are oversubscribed. Sometimes, you can still get a place if you live outside the catchment area.

And remember that house prices are not only down to school catchment areas. Other factors like transport links and local amenities make a big difference, too.

I’m considering moving to an area with a good state school – what should I do?

If you’re thinking of moving to an area with a good state school, perhaps to get your kids or maybe future kids into it, then it’s essential to do your homework.

* A good estate agent can tell you about the property market in the area. They can tell you about what properties are available and what you should expect to pay to buy there. They should also give you information about good value places to buy in the area.

* Get information from the school or local education authority about their latest admissions policy. Find out what the chances of getting a place there actually are.

* Talk to other parents if you can. If you’re outside the area, Mumsnet is an invaluable resource here. You can search for reviews and information about the school. You can ask for advice from other parents in the Talk section.

I’m thinking of selling – what should I do?

If you already live near a good state school, your property has probably always been a sought-after asset. But the VAT on private school fees means it could be even more sought after now. If you’re thinking of selling, a good estate agent can advise you on how to sell it successfully and get the best possible price.