Labour’s Tax Policy on Private Schools to Drive Up House Prices Near Top State Schools

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Labour’s proposed tax on private education is set to drive up house prices in catchment areas of high-performing state schools, according to leading estate agent Hamptons.

The plan, which includes the introduction of VAT on independent school fees, is anticipated to increase property values in desirable areas as parents move their children to state schools if private fees become unaffordable.

Aneisha Beveridge, Head of Research at Hamptons, commented, “If Labour wins, we would expect prices in catchment areas of top state and grammar schools to continue outperforming the rest of the market.” Hamptons’ research shows that property prices in areas with highly rated schools have already been rising faster compared to those in less desirable catchment areas.

Since 2008, property values near schools rated as “outstanding” have surged by 67%, while those near “good” schools have increased by 61%. In contrast, properties in catchment areas for schools rated “unsatisfactory” or “inadequate” have seen growths of 59% and 57%, respectively. Even with rising interest rates, properties near top schools have maintained their value better, with only a 1.5% decrease compared to a 5.5% drop for homes near “inadequate” schools.

Sir Keir Starmer has pledged to implement this tax policy immediately if Labour wins the general election. The plan involves incrementally introducing VAT on almost all private school fees over five years, reaching the standard rate of 20%, and removing business rates relief for independent schools.

Despite this, Beveridge noted that high interest rates could limit house price growth in these already expensive areas. “With mortgage rates where they are, it’s particularly costly for households to upsize, which will keep a bit of a cap on price growth,” she said. Families might need to balance the additional costs of private school fees against the potential expense of moving and downsizing.

Wealth advisers report that some families are already relocating to reduce outgoings or to be near top state schools in anticipation of Labour’s policy. The Bank of England is expected to lower interest rates from the current 16-year high of 5.25% in the coming months, which could revive the property market.

Hamptons has also observed increased competition for homes near “outstanding” rated state schools since Labour announced the VAT proposal in 2021. Presently, around 7% of pupils in the UK attend private schools.

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