Latest business rates changes for independent schools: what you need to know
True to her word, the Chancellor, Rachel Reeves, has pushed forward the expected tax hit on independent schools – announcements from day one and then confirmation in the Budget, leading very quickly into draft legislation.
The Non-Domestic Rating (Multipliers and Private Schools) Bill withdrawing the 80% Charitable Relief was published on 13 November and will need to be enacted quickly for councils to issue revised rates bills by April 2025. There are four key points of interest:
- The relief is being withdrawn based on the use of a hereditament as a ‘private school’ with no reference to the legal entity.
- Nurseries are excluded from the definition of ‘private school’ which, it seems, will enable relief to continue if the nursery has its own rating assessment.
- Schools ‘wholly or mainly’ serving pupils with an Education, Health and Care Plan (EHCP) may retain relief, but this will likely apply only in very few cases. There is also no plan to introduce the Scottish exemption for schools that admit students based on musical ability, meaning that most schools will face the full tax exposure.
- There is empty rates exemption for vacant properties owned by a charity which, when next in use, will be occupied by that or another charity. There is a clause in the new Bill to specifically remove this provision for independent schools.
The Uniform Business Rate
In a revaluation year, new multipliers – the Uniform Business Rate (UBR) – will be set for England, Scotland and Wales once the totals of the new Rateable Values are known. The governments then usually set these to ensure that the levels of income are maintained in real terms.
In non-revaluation years, the UBR usually increases in line with inflation. Most of the rates were frozen from 2020/2021 to 2023/2024 (the initial trigger being Covid), only rising again from 2024/2025).
Following the unexpected fall in the Consumer Price Index (CPI) as at September 2024, the Budget confirmed that the UBR in England will rise by only 1.7% in April 2025, setting it at 55.5p for most properties. The small UBR for properties valued below RV £51,000 remains frozen at 49.9p.
If Scotland and Wales follow England’s lead, applying the same 1.7% inflationary increase in their upcoming December budgets this would bring the UBR in Wales to 57.2p and the higher rate in Scotland to 56.9p in Scotland (with different rates for lower-value properties).
Challenges in appealing the 2023 Rateable Values
Many schools were able to make successful appeals against their business rates liabilities for the 2017 Rating List (1 April 2017 to 31 March 2023), following the agreement of a new national valuation scheme in England and Wales. This was the result of lengthy negotiations with the Valuation Office Agency (VOA) by the three leading firms advising in this sector – Gerald Eve being one of them. A new set of Rateable Values took effect on 1 April 2023, with the figures increasing by an average of 12% against a background of increasing financial constraints for independent schools.
The current appeal system – ‘Check, Challenge, Appeal’ – should remain open in England and Wales until 31 March 2026. However, successful appeals require a coordinated approach and strong evidence, which may be difficult for individual schools to provide without wider sector support.
Independent schools in city centres generally have Rateable Values based on local rental markets. However, most independent schools are valued using the Contractors Basis, which references rebuilding costs. With construction costs still on the rise, there is an argument to say that an income and expenditure-based valuation (as used for hotels, pubs, and cinemas) would be more appropriate. In theory, the surplus generated by schools would indicate the amount they can afford to pay by way of a hypothetical rent.
Accordingly, Gerald Eve is actively consulting with schools and other advisory firms with a view to building a strong case for alternative valuation methods.
Council tax and independent school residences
Council tax applies to all residential accommodation at independent schools, with the charge for each band set locally. However, unlike business rates, council tax bands have not been updated in England since their introduction in April 1993.
In principle, a revaluation would apply the tax more fairly in each area, reflecting relative values and widescale changes in the housing stock over the last 30 years. There should not be any increase in revenue in real terms. However, unhelpful commentary – implying that council tax bills would track house price inflation since 1993 – has made this a politically sensitive topic.
The Welsh government has been bolder, with plans for a council tax revaluation in 2028 – the last being in 2003. It will be very interesting to see if Westminster follows suit, but there have been no formal announcements.
New ‘Duty to Inform’ obligations
The Government’s intention for more transparency and new duties for ratepayers, as legislated for in the Non-Domestic Rating Act 2023, now appears to have been renamed ‘The Information Duty’.
Due to systemic complexities, the rollout of these transparency measures has been delayed to 2026, with full implementation expected by April 2029. Initially set for 2023, more transparency from the VOA in the form of information on valuations and rental evidence will now be available by 2029.
This obligation, once enforced, will be the first time schools must proactively declare to the VOA any property alterations or changes of occupation or tenure. Schools will also have to make an annual declaration to verify or update the VOA’s records.
The VOA’s records are not always up to date, and it will be essential to understand the extent to which schools will be required to verify existing records – and whether historic omissions should be declared.
Looking ahead
A potentially positive measure is the introduction of a new Improvement Relief. The relief applies to qualifying improvements to a property, which could be in the form of new buildings added within an existing school setting or extensions and other rateable improvements. If these are completed after1 April 2024 and the building or site has remained in occupation throughout the works, then the increase in liability resulting from the improvements is delayed for one year.
However, for the most part independent schools face significant challenges with these changes, requiring a clear financial strategy to balance rising costs with maintaining educational quality. Trusted advisors like Gerald Eve can provide essential guidance, helping schools identify savings opportunities and mitigate risks in this evolving tax landscape.
