Scotland's private schools to start paying full tax from next year

Scotland's private schools will face new tax bills from next September when they will lose their charitable status relief it was confirmed today.

Public finance minister, Kate Forbes, told a Holyrood committee it was the government's intention to scrap charitable business rates relief for mainstream independent schools from 1st September 2020 - three years after the move was first recommended.

The Scottish Parliament's local government and communities committee was considering the new Non-Domestic Rates (Scotland) Bill, when Ms Forbes revealed the date from which private schools will no longer be classed as charities for the application of rates relief when the legislation is approved.

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Scots private schools face £37m bill in move to axe tax breaks
Merchiston Castle in Edinburgh would be one of the schools affected by the loss of charitable rate relief.

She said: "The Barclay Review implementation plan was published two years ago and it was clear that we would deliver the change by 2020 to allow time for those schools affected to plan ahead.

"The independent schools provisions are not currently identified for early commencement, but I can confirm it would be the government's intention to commence these provisions from 1st September 2020, subject of course to committee's decisions and votes."

She added: "A September 2020 commencement date would be almost three years after the change was first recommended by the Barclay Review and it would tied to the start of the academic year rather than the start of the financial year which should hopefully help schools with their planning for the academic year 2021.

"We've always been clear that we will deliver this change as recommended and I hope that confirmation of government commencement intentions will help the sector in its ongoing planning."

However Scottish Conservative education spokesperson Liz Smith, who had attempted to amend the Bill, said the removal of rates relief would mean private schools were "likely to become more elitist" and the change would also "remove parental choice".

Non-domestic rates are levied on business properties, determined by the assessed value of the building, and are the second-highest source of tax income for the Scottish Government.

Under the current system private schools are currently eligible for 80 per cent mandatory rates relief if they are registered as a charity, but this will end under the shake-up of business rates. State schools do not qualify for charitable relief.

A review of the system by former RBS chief Ken Barclay made recommendations to reform non-domestic rates, resulting in the Bill now being considered in the Scottish Parliament.

While it proposes carrying out valuations every three years, rather than the current five years, and tackling known tax avoidance, including tactics involving unoccupied or under-used properties, it also recommends independent schools should no longer be able to claim charitable relief.

It has been predicted that when the rates relief is removed, it could cost private schools £37 million between 2020 and 2025, which could result in fees going up, playing fields and other assets being sold off, as well as cuts to teacher numbers and grant funded assistance for poorer youngsters.

Based on a commencement date of 2020/21, the new rules would see private schools pay £7m extra in the first financial year, rising to £7.2m the following year, £7.4m the year after, £7.5m in 2023/24 and £7.7m the next year, taking account of inflation. In total, schools would pay £36.9m more in the first five years.

Liz Smith said: “I repeat my concern that the SNP has chosen to bring forward section 10 of the Non-Domestic Rates Bill which will see schools in the independent sector lose their right to relief on business rates.

“Should this last at stage 3, the net effect of this will mean fee increases in the sector which, in turn, will mean some parents will find it more difficult to access independent education. That diminishes parental choice and it will also make the independent schools more elitist.

“In both cases, that is the exact opposite of the aims of the SNP government and it is also contrary to the unanimous view of the Scottish Parliament in 2005. As well as this, the changes would have implications for school places in the state sector which, as everyone knows, is already fully stretched.

“There is still scope before stage 3 for the Scottish Government to revise its position and I hope it will do so.”