Charities, and therefore private schools, only pay 20 per cent of their business rates, which is thought to deprive cash-strapped local authorities of £144 million per year. Scotland removed this tax break from independent schools at the start of 2022, so it’s certainly possible to do. It’s worth noting that certain specialist schools were exempt from this change.
Private schools can also benefit from being able to claim gift aid on any donations, as can the donor! Let’s say you wanted to donate £100,000 to your old school, and were a top rate tax payer. [Sunak]The school would be able to claim an additional £25,000 in gift aid from the tax-payer, and you would also be able to reclaim £31,250. Donate £100,000 to your local primary school and it actually costs you £100,000, so probably not worth it – just donate a £10 bottle of wine instead! [Also Sunak…] Parent-Teacher Associations can register as charities and claim gift aid, but they are only allowed to raise money for specific things, and not for the running costs of the school.
While charities aren’t allowed to make a profit, for many private schools, in practice this means they can make a nice surplus which then goes towards a new swimming pool, theatre, upgraded science equipment and so on. They don’t pay tax on any of the surplus, even if it’s sitting in a bank account.
Many private schools also have investment portfolios, and again, they don’t pay any tax on the income from these portfolios. In fact, there’s a nice tax loophole for the super-rich whereby they pay all their fees upfront, the school invests the lump sum, gets the returns tax-free, the parent receives a discount and once their child leaves, the school and parent split what’s left.
And during the Covid-19 Pandemic, private schools were eligible to apply for loans, with the government covering the first year’s interest payments, which state schools could not apply for. Just another example of private schools benefiting financially from their charitable status, while state schools missed out.
There appear to be many ways private schools avoid tax (vat, cut, business rates and)