Advisers warned to be ready for Labour tax change

Advisers warned to be ready for Labour tax change

Advisers should prepare to advise clients on ways to minimise the impact on their clients of a potential change to the tax status of fee-paying schools.

The Labour Party has proposed to levy VAT on school fees, and also to remove the discount on business rates that such schools receive.

The proposal, which was first reported in the Telegraph, is estimated by the Labour Party to be capable of raising £1.6bn. 

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Rachel de Souza,  private client partner at tax advisory firm RSM, said there are two options for individuals wishing to protect their wealth in the event that a future Labour government pursued this policy.  

In a note to clients she wrote: “One option could be to consider paying several years of fees upfront in advance of any changes coming into force. Aside from needing to have the cash available, this approach would be risky, as there could be any number of reasons why a child would need to move school. 

Ms De Souza added that school fees may also be a way for grandparents to mitigate future inheritance tax liabilities. 

She added: “If grandparents have excess income, paying the school fees would be efficient from an inheritance tax perspective.

"Alternatively, they could set up a UK trust for the child. Any investment income would be taxable but when the trust pays the school fees, the child could claim back the tax paid on the investments. This could be worth considering where grandparents have spare capital to give away.”