Vardags Family Law Essay competition 2024/25 | Emma Botterill

The Impact of Labour’s 20% VAT on Private School Fees for Divorced or Divorcing Parents

Author: Emma Botterill - University of Edinburgh

Labour’s plans to disrupt the private school sector just made your Child Maintenance payments significantly bigger. In the lead-up to the July 2024 General Election, legislative proposals concerning the imposition of a flat-rate 20% Value Added Tax (VAT) on private school fees were actively discussed across both sides of the Commons. In alignment with the government’s manifesto commitments, the tax came into effect in January 2025, thereby increasing the financial obligations of approximately 556,551 parents whose children are enrolled in private education (Clarke, 2024). Government projections estimate that the policy will generate £1.725 billion per annum (Gov.uk, 2024).

Nevertheless, significant legal and policy concerns have been raised regarding the broader implications of this tax. It has been argued that the additional financial burden may compel parents to withdraw their children from private schools, thereby increasing enrolment pressure on an already oversubscribed state education system. Additionally, criticisms have been levied against the measure for exacerbating socio-economic disparities, with some arguing that it will entrench educational inequality rather than mitigate it (Tom Tugendhat MP, 2024). For divorced or separated parents, particularly those subject to existing financial orders or child maintenance obligations, the legal ramifications of this policy are profound. The enforceability of school fee orders, typically included within ancillary relief proceedings at the time of divorce, may now become a point of contention if one party asserts an inability to meet the increased costs. Given that maintenance obligations must be bona fide, regular, and reliable (Child Support Act 1991), a unilateral cessation of fee payments could trigger enforcement proceedings, provided the defaulting party is demonstrably capable of meeting the revised financial commitments.

Legal framework Governing Child Maintenace and School Fee Payments

Under Section 1 of the Child Support Act 1991, both parents bear a statutory duty to provide for their child’s maintenance, irrespective of marital status. This obligation extends to educational expenses, particularly where private schooling has been an established aspect of the child’s upbringing. While non-resident parents typically bear the primary financial responsibility under the Child Support Maintenance Calculation Regulations 2012 (Section 66, Part 5, Chapter 2), courts retain discretionary powers to vary such arrangements where both parties have significant financial resources.

Moreover, courts are empowered under Section 23 of the Matrimonial Causes Act 1973 to issue school fee orders, ensuring continuity of private education post-divorce. However, these orders are contingent on the financial capacity of the paying parent. Where a material change in circumstances—such as an unforeseen tax burden—renders compliance impracticable, the appropriate legal recourse would be an application for variation or discharge of the order under Section 31 of the Matrimonial Causes Act 1973.

Enforceability of School Fee orders and Practical Considerations

For parents subject to a financial remedy order, the introduction of VAT on school fees introduces new complexities. In the event of non-payment, the receiving parent may pursue enforcement under Part 33 of the Family Procedure Rules 2010, provided that the paying party has the means to comply. Given the stringent judicial approach to non-compliance, failure to meet school fee obligations—absent compelling financial evidence—could result in a judgment summons application, potentially leading to a suspended committal order (see Prest v Petrodel Resources Ltd [2013] UKSC 34 for judicial emphasis on financial transparency).

For high-net-worth individuals (HNWIs), a key legal challenge is demonstrating that private education constitutes a necessity rather than a luxury, particularly where tuition fees range from £38,000 to £50,000 per annum (Spears, 2024). Notably, Eton College has projected an increase in fees to £63,000 per annum, posing a significant financial escalation for non-resident parents with multiple children (Merriman, 2024). However, certain institutions, including the 23 private girls’ schools within the Girls’ Day School Trust (GDST), have opted to absorb part of the VAT increase internally, limiting fee increases to 12% (GDST, 2024). Judicial Attitudes towards Private Schooling in Financial Proceedings.

Case law indicates that courts are reluctant to impose a school fee order where private education was not an explicit expectation within the child’s upbringing (Waldrons Solicitors, 2024). Judicial precedent reinforces the principle that private education is considered a discretionary expense, and thus, the burden of proof lies with the applicant parent to establish its necessity in the best interests of the child. Accordingly, securing a comprehensive financial order at the time of divorce remains paramount, as it ensures enforceability and mitigates future disputes (Orsi-Barzanti, 2024).

In conclusion, while the 20% VAT increase on private school fees seeks to generate additional public revenue, its legal implications for divorced parents are significant. The policy introduces potential disputes over existing financial orders, necessitating pragmatic negotiations or legal recourse where financial obligations become untenable. Given the potential for enforcement proceedings, affected parents should seek early legal advice to explore options such as order variations, mediation, or structured settlements, thereby mitigating the financial and psychological strain associated with protracted litigation.

Case study

The case concerns the enforcement of a financial remedy order in the context of divorce proceedings. Sir Frederick Barclay in 2021 was ordered to pay his former wife, Lady Hiroko Barclay, a lump sum of £100 million in two instalments of £50 million each. Despite this order, no payments were made. Consequently, Lady Barclay initiated judgment summons proceedings to enforce the order. During the enforcement process, the court found that Sir Frederick had the ability to pay £245,000 related to smaller obligations but not the full lump sum. However, the proceedings were delayed multiple times due to claims that funds were "imminently" arriving from an undisclosed lender. The court noted that the alleged lender’s identity was never revealed and questioned whether such a lender even existed. The court was unable to conclude that Sir Frederick had access to funds, given that his wealth was held in complex trust structures. The court ultimately determined that it could not enforce a committal order (suspended or otherwise) due to the lack of clear evidence of his financial means. However, the outstanding debt remains enforceable, and the court emphasized that Sir Frederick’s family, particularly his nephews, had the power to resolve the situation. This case is relevant to the discussion on the impact of a 20% VAT increase on private school fees, particularly for divorced individuals with financial obligations toward their children’s education.

1) Enforcement Issues & Financial Constraints:

As seen in this case, enforcing financial orders post-divorce can be highly challenging, especially when assets are tied in trusts or financial arrangements. An Increase in VAT on school fees would escalate financial burdens on divorced individuals, particularly those struggling with court ordered maintenance.

2) Financial Dependence & Delayed Payments:

Lady Barclay’s financial troubles show how former spouses can become financially dependent on family members when expected payments are incomplete. Further, a VAT increase would make it harder for financially strained individuals to meet private schooling costs, thus leading to disputes over additional taxes.

3) Litigation Risks & Family Disputes:

The case highlights how disputes over finances can lead to prolonged litigation, draining resources from both parties. Moreover, an increase in VAT can trigger further disputes, putting spouses back in court reliving experiences.

4) Impact on Trusts & Wealth Structures:

The judgement signifies the role of trusts in shielding assets from legal enforcement. High net-worth individuals using trusts to manage school fee payments may find that VAT increases can add further complexity to financial planning within divorce settlements. In summary, just as the enforcement of court-ordered payments in divorce cases can be fraught with difficulty, the VAT increase on school fees is likely to exacerbate financial tensions between divorced parents, particularly where payment obligations are already contentious.

Recommendations

Drafting Strong Prenuptial and Postnuptial Agreements

 Wealth protection measures, including prenuptial and postnuptial agreements, can help clarify obligations regarding:

1) Future school fee commitments

2) Responsibility for VAT increases

3) Potential school changes due to financial difficulties

A well-drafted agreement provides legal clarity, reducing the risk of litigation.

Court Orders vs. Voluntary Agreements

While court orders provide strong legal protection, voluntary agreements between parents may offer:

1) Greater flexibility in financial arrangements

2) Reduced legal costs

3) Faster resolution of disputes

However, parents must ensure that all agreements are formalized in writing, reducing potential future disputes.

To conclude, the introduction of a 20% VAT on private school fees represents a significant financial shift for divorced or divorcing parents, particularly those with existing financial orders covering educational costs. The legal ramifications extend beyond increased financial commitments, potentially leading to disputes over enforcement, variation applications, and financial strain on both parties. Courts have historically treated private education as a discretionary expense, meaning that parents must demonstrate necessity when seeking school fee orders or defending existing obligations. To mitigate these challenges, proactive financial planning and legal safeguards are essential. Parents should renegotiate financial settlements, ensuring that VAT-adjusted provisions are incorporated into court orders or voluntary agreements. Where disputes arise, mediation and alternative dispute resolution (ADR) should be considered to avoid costly litigation. Additionally, educational trusts and structured settlements can provide long-term stability, ensuring that school fees remain secure despite financial fluctuations.

Ultimately, high-net-worth individuals must take a strategic legal approach to protect their children’s continuity of education while balancing new financial realities. By doing so, they can minimize disputes, protect their financial interests, and uphold their legal obligations, ensuring the best possible outcome for their children’s future.

Bibliography

Clarke, J. (2024). Impact of VAT on Private Education: A Comprehensive Analysis. London: Education Policy Institute.

Department for Education. (2024). Private school fees — VAT measure. [online] GOV.UK. Available at: https://www.gov.uk/government/publications/vat-on-private-schoolfees/ac8c20ce-4824-462d-b206-26a567724643 [Accessed 31 Jan. 2025]. E

ton College. (2024). Fee Structure Update. [online] Available at: https://www.etoncollege.com/fees [Accessed 31 Jan. 2025].

Girls’ Day School Trust (GDST). (2024). VAT Policy Statement. [online] Available at: https://www.gdst.net/vat-policy [Accessed 31 Jan. 2025].

Gov.uk. (2024). Private school fees — VAT measure. [online] Available at: https://www.gov.uk/government/publications/vat-on-private-school-fees [Accessed 31 Jan. 2025].

Merriman, J. (2024). ’Eton to raise fees by 20pc amid Labour VAT raid’, The Telegraph, 30 August. Available at: https://www.telegraph.co.uk/news/2024/08/30/eton-to-raise-fees-by20pc/ [Accessed 31 Jan. 2025].

Orsi-Barzanti, F. (2024). ’The Importance of Comprehensive Financial Orders in Divorce Proceedings’, Family Law Journal, 15 July.

Spears, A. (2024). ’The Rising Costs of Elite Education’, Financial Times, 5 January. Tom Tugendhat MP. (2024).

’Debate on Education Taxation Reforms’, Hansard, 14 May. Available at: https://hansard.parliament.uk/commons/2024-05-14/debates/education-taxationreforms [Accessed 31 Jan. 2025].

Waldrons Solicitors. (2024). ’Private School Fees and Financial Remedy Orders’, Waldrons Legal Blog, 22 June. Available at: https://www.waldrons.co.uk/blog/private-school-fees-andfinancial-remedy-orders/ [Accessed 31 Jan. 2025].

Acts of Parliament

Child Support Act 1991, c. 48. London: HMSO.

Matrimonial Causes Act 1973, c. 18. London: HMSO.

Child Support Maintenance Calculation Regulations 2012, SI 2012/2677. London: HMSO.

Family Procedure Rules 2010, SI 2010/2955. London: HMSO.

Cases

Prest v Petrodel Resources Ltd [2013] UKSC 34.