Private school Advance Fees Schemes - pros and cons?

[feesquestion]

DS's new school gives the option of paying his whole education up-front. We have the cash, and it's possible that this would allow us to avoid VAT (depending on how the legislation is written).

Has anyone else done this? What should we be considering? Will we regret it?

Any advice much appreciated.

It seems like a big leap of faith. But hard to say without knowing more details. Is there a financial incentive other than possibly avoiding VAT? Are they offering 7 years at today’s prices?
What happens if he doesn’t like the school?
What happens if the school becomes unsustainable and closes down?
what happens if he is asked to leave for some reason?

I'm not sure what the incentive is other than VAT, as they don't fix the fees at today's prices. They quote an amount based on estimated fee rises, then adjust later if fees rise faster/slower than expected. The money is given back if our son leaves the school for any reason. I don't know what happens if the school fails (I think that's unlikely, but I should check).

From the school's perspective, they benefit from getting the cash up-front (cheap source of working capital).

In normal times (i.e. without the VAT consideration) I'm not sure what the benefit to parents is. Does anyone know?

Paying upfront sounds convenient, but consider the long-term financial impact and potential risks. Check VAT laws thoroughly and weigh pros and cons before making a decision. Good luck!

What if your dc doesn't like the school or you move house, can you get your money back?

“In normal times (i.e. without the VAT consideration) I'm not sure what the benefit to parents is. Does anyone know?”

Currency fluctuations for overseas parents and inheritance tax for grandparents primarily.

The incentive is normally that you pay at today's prices, or that you pay what they estimate their future increases to be (but don't then get invoices for the difference if they're higher!), or that they estimate it all including fee rises and then apply a % discount.

The way your school have explained it, I'm not sure what the benefit is (aside from potential VAT).

It sounds a terrible scheme. You are lending the school about £150k at 0% interest for 7 years (average life about 4 years).

Even if you save the VAT, you are roughly breaking even and, if you don’t, you have given the school about £15k as a gift.

And that doesn’t even take into account you having a dispute with the school about anything or them going out of business.

Unless fees are fixed at todays prices I don't really see the advantage. Thats a lot of lost interest plus you don't know what level the school are planning to pass on for VAT. They don't actually have to pass it on at all although they will but unlikely at full 20%

Why are you assuming £150k??!!! The average day primary private fees in the UK is £15600 which works out at around 109k for 7 years.

Why are you assuming £150k??!!! The average day primary private fees in the UK is £15600 which works out at around 109k for 7 years.

Im not sure that warrants three exclamation marks. The figures aren't that different and we don't know that it is the average primary private school.

When we paid for 1 year in advance we got a discount.

My parents did this for me, paid in year 6 up front through to year 13. I believe that by the time I finished year 11 the money paid was all “used” so I effectively got 2 years at sixth form for free.

Our school offers a small discount on fees (between 1-2%) in return for advance payment. But no fix. Plus, of course, the possibility of avoiding VAT. Even so, we are not sure if it’s the best use of money compared with investing elsewhere.

I'm not doing anything just yet. I suspect the Tories won't call an election until October as they want as much money for nothing and to leave the country in as bad a state as possible to make Labour look worse.

I may be completely off but I suspect Starmer will need to tweak and pass the VAT bill through so a few more months at least. Whether they will be able to deploy it halfway through a year is questionable but they may well wait until the following September. So your DC potentially have a school year where you can plan and the school can figure out what their policies will be better. Having left a school due to bullying I'd not want to pay upfront for these reasons, especially when there is so far no detail.

My nieces school recently brought out a similar policy.

You can pay a max £100k up front, then you decide how that £100k is allocated I believe. My brother has sent me it for advice but I’m not sure I quite understand it!

There is a clause about VAT still being payable but I guess if the point of invoice is now then why would VAT be payable although the school will release monthly invoices . All very unclear.

Great points about lost interest over time negating any VAT savings. i also think there is a bit of uncertainty about how these schemes would need to be set up to avoid VAT, so would be a bit sceptical that it would achieve its stated aim.

Thank you, this is all very helpful. I'll wait and see the details when I get a personalised breakdown from the school.

What a strange scheme. There seem to be no benefits at all (to you….plenty for the school).

Is my logic correct that adding VAT to fees should actually make (pre-VAT) fees lower, because the schools will be able to reclaim VAT on many of their inputs?

(Or at least, fees should grow more slowly as it relieves some cost pressure on the schools).

If so, then it's good that the advance fees scheme doesn't fix the cost.

Yes maybe -- apart from the VAT thing. Or if there were grandparents trying to spend down their assets for inheritance tax reasons.

Yes - I do not understand all the ins and outs, but our school have communicated that they expect the effective increase for parents to be 10-12%

I pay fees at one of my kids' schools 2-3 years at a time, it's an amount of money per term that comes off each bill, doesn't fix the rates. They pay 3.5% interest, which is a pretty good rate given that it's effectively net. Very long established school.

Not in the South East. More like £25k.

I don't know what happens if the school fails

@feesquestion that's easy to answer. You're an unsecured creditor and you lose all your money. I wouldn't do it if I had any doubts at all about the security of the school.

I gather that there will be lots of things that they can claim VAT back on which they currently can't, which will offset some of the rise.