Independent schools: taxation and charitable status

What are independent, or private, schools?

As of January 2024, there were 2,421 independent schools in England in total, a small increase from 2,408 in January 2023. There were a further 90 independent schools in Scotland (October 2024), 83 in Wales (September 2024), and 14 in Northern Ireland (October 2023).

Independent schools can be day or boarding schools. They can be mainstream or special schools – that is, specifically arranged to make provision for children with special educational needs and disabilities (SEND). Some have a faith character or follow particular philosophies.

What changes is the Labour government planning?

The Labour government has announced plans to reform the tax treatment of independent schooling. It is not proposing to remove the charitable status that some independent schools have.

Following the election of the Labour Party in July 2024, and subject to the passage of legislation, the standard 20% VAT rate will apply to private schools from 1 January 2025.

Additionally, the government is planning to remove the charitable (business rates) relief currently available to English independent schools that are charities, with some exceptions. Wales has announced similar plans, and Scotland removed business rates relief for charitable independent mainstream schools in 2022.

Commentary on the government’s plans

Views differ on whether independent schools should be able to benefit from tax exemptions and reliefs.

Labour’s Fiscal Plan suggests £1.5billion of revenue will be gained from applying VAT and business rates relief changes to independent schools. The Institute for Fiscal Studies said this broadly aligned with their own earlier estimates of between £1.3 and £1.5 billion. However, the IFS has also said the issues are finely balanced, and estimates of potential pupil outflows from independent schools are uncertain.

Other bodies, including the Independent Schools Council, have raised concerns, suggesting that the outflow of pupils to the state sector could be much higher than anticipated, and could place pressure on state-funded schools and SEND provision.

Independent schools as charities

Around half of independent schools in England are charities.

For the purposes of the law in England and Wales, the Charities Act 2011 defines a charity as an institution that is established for charitable purposes only. The act lists descriptions of charitable purposes, which must be for the public benefit.

The advancement of education is a charitable purpose, so independent schools may qualify as charities. Educational charities, like all other charities, must demonstrate they provide a public benefit. The term public benefit is not defined in statute; it is interpreted according to the common law.

In Scotland, an organisation must meet the ‘charity test’ set out in the Charities and Trustee Investment (Scotland) Act 2005. It must have only charitable purposes and provide public benefit in Scotland or elsewhere to qualify as a charity. The advancement of education also constitutes a charitable purpose under Scottish legislation.