Labour’s proposed VAT on private school fees could significantly impact property values in areas of top state schools, as parents seek affordable education alternatives.
- The policy aims to introduce a 20% VAT on almost all private school fees over five years.
- House prices near highly rated state and grammar schools are forecasted to outperform the wider market.
- Current property values near ‘outstanding’ schools have increased by 67% since 2008.
- Despite high interest rates, properties close to top schools are expected to maintain their value more effectively.
Labour’s proposal to introduce VAT on private school fees is anticipated to trigger an increase in property values in catchment areas of top state schools. This move is expected as parents seek to transfer their children from private to state schools due to the rising costs of private education.
Aneisha Beveridge, Head of Research at Hamptons, stated that if Labour wins, property prices in desirable catchment areas will likely continue to outperform the rest of the market. This is based on Hamptons’ research indicating that property prices in areas with highly rated schools have been increasing faster than those in less desirable areas.
Since 2008, properties near schools rated as ‘outstanding’ have seen a surge of 67%, while those near ‘good’ schools have increased by 61%. Conversely, homes in catchment areas for schools rated ‘unsatisfactory’ or ‘inadequate’ have experienced slower growth rates of 59% and 57%, respectively. Despite rising interest rates, properties near top schools have only seen a minor decrease in value, by 1.5%, compared to a 5.5% drop for homes near ‘inadequate’ schools.
Sir Keir Starmer has committed to implementing this tax policy immediately upon a Labour victory in the general election. The plan would gradually introduce VAT on private school fees over five years, ultimately reaching a standard rate of 20%, and remove business rates relief for independent schools. However, Beveridge noted that high mortgage rates could limit house price growth in these already expensive areas.
Families may need to weigh the costs of private education against the potential financial impact of relocating to areas with top state schools. Wealth advisers report that some families are already moving to reduce overall expenses or to secure places for their children in top-rated state schools ahead of Labour’s proposed policy.
The Bank of England is anticipated to reduce interest rates from the current high of 5.25% in the coming months, potentially revitalising the property market. Hamptons has observed heightened competition for homes near ‘outstanding’ rated state schools since Labour announced the VAT proposal in 2021. Currently, around 7% of pupils in the UK attend private schools.
Labour’s proposed tax policy on private schools is set to notably influence property values and school choices.
