VAT is a broad-based tax on consumption and the 20 per cent standard rate applies to most goods and services. VAT is the UK’s second largest tax forecast to raise £171 billion in 2024/25. Taxation is a vital source of revenue that helps to fund vital public services.

To stimulate the renovation of existing buildings, residential renovations are subject to a reduced rate of VAT of five per cent if they meet certain conditions. These include conversions of buildings from one residential use to another, conversions from commercial to residential use, and the renovation of properties that have been empty for two or more years.

The Chancellor makes decisions on tax policy at fiscal events in the context of the overall public finances.

As part of the NATO Status of Forces Agreement (SOFA), visiting NATO personnel have access to Visiting Forces Relief (VFR), for example the VAT free purchase scheme which provides relief on goods and services to US personnel in the UK. VFR is a reciprocal agreement, only available to the NATO Forces visiting another country and not to those of the Host Nation.

The Government greatly values the contribution of our serving military personnel. The Ministry of Defence has increased the funding allocated to the Continuity of Education Allowance (CEA) to account for the impact of any private school fee increases on the proportion of fees covered by the CEA in line with how the allowance normally operates.

Since 1 January 2025, all education services and vocational training provided by private schools in the UK for a charge have been subject to VAT at the standard rate of 20 per cent. This also applies to fees paid by students in receipt of the Music and Dance Scheme grants.

This is to ensure fairness and consistency across all schools that provide education services and vocational training for a charge.

However, the Department for Education has decided to adjust its Music and Dance Scheme bursary contribution for families with a relevant income below £45,000 to account for the VAT that will be applied on fees, ensuring that the total parental fee contributions for families with below average relevant incomes remain unchanged for the rest of the 2024/25 academic year.

To stimulate the construction of new homes, the Government maintains a zero rate of VAT on new-build residential buildings. Additionally, residential renovations are subject to a reduced rate of VAT of five per cent if they meet certain conditions. These include conversions of buildings from one residential use to another, conversions from commercial to residential use, and the renovation of properties that have been empty for two or more years.

VAT is the UK’s second largest tax, forecast to raise £171 billion in 2024/25. Tax breaks reduce the revenue available for vital public services and must represent value for money for the taxpayer. Exceptions to the standard rate have always been limited and balanced against affordability considerations.

Introducing further construction-related VAT reliefs would come at a significant cost to the Exchequer. The Chancellor makes decisions on tax policy at fiscal events in the context of the overall public finances. In July 2024, the Government published an audit of public spending, which set out £22 billion of in-year pressures. These pressures were not limited to 2024/25, with the vast majority recurring in future years.

The Government is committed to breaking down barriers to opportunity, ensuring every child has access to high-quality education, which is why we have made the tough decision to end tax breaks for private schools. This will raise revenue for essential public services, including investing in the education system.

The Government has set out the details of this policy in the technical note Applying VAT to Private School Fees and Removing the Business Rates Charitable Rates Relief for Private Schools which can be found at the below link. A technical consultation on the technical note and draft VAT legislation will be open until 15 September 2024.

https://www.gov.uk/government/publications/vat-on-private-school-fees-removing-the-charitable-rates-relief-for-private-schools