Richard Green looks ahead to another year of uncertainty

Last year, the UK independent school market experienced significant disruption. Despite considerable market activity, including mergers and school ownership transitions, buyers, investors and lenders exhibited heightened caution. This was due to the lack of visibility leading up to and following the announcement of VAT being imposed on school fees, which became effective from January, the loss of business rates relief from April this year, and increases in employers’ National Insurance contributions (NICs). Consequently, they evaluated new opportunities with a detailed focus on pupil retention, new pupil recruitment, future operational costs, financial implications, and sustainability.

Market uncertainty also attracted opportunistic, sector-agnostic interest from property developers and investors, anticipating increased school closures. Meanwhile, international trade buyers concentrated on acquisitions in countries offering greater visibility and stability, while remaining open to strategic mergers and takeovers in the UK. This uncertainty is expected to persist in the short to medium term as the independent school sector adjusts to these significant policy changes. While some schools have robust contingency plans, others are less prepared and more likely to be affected.

Christie & Co’s annual sentiment survey of childcare and education service providers across the country revealed mixed feelings about this year. About 29% felt positive, 31% felt negative, and 40% remained neutral, highlighting the prevailing uncertainty. Regarding sale and acquisition plans, 62% indicated they are looking to buy and/or sell this year.

Outlook for the market

As we look ahead through 2025, several key questions remain:

• How extensive are the loss of pupil numbers from independent schools likely to be and will state schools be able to accommodate these pupils?
• Will parents choose to send their child to a state school or will they opt for homeschooling alternatives?
• How will the addition of VAT affect schools’ new pupil recruitment?
• How many children with SEND who have been privately funded will proceed through an Education, Health and Care plan (EHCP) assessment programme? Should those children gain EHCPs and to what degree will these costs exceed the sum that had previously been privately funded? If this sits at the volumes that are anticipated, these VAT changes could have a financially negative net impact, at complete odds with the initial objective of raising £1.5 billion to train 6,500 new teachers for state schools.

2025 will undoubtedly be challenging for independent school operators across the UK. It will be interesting to see how the market adapts to the implementation of VAT, rising NICs, and increasing wage costs. For businesses forced to close, competitive tension will prevail, especially from buyers in the specialist education and children’s social care sectors, where demand for services continues to rise and suitable properties remain in short supply.

This year, we also expect to see:

• Increased merger and acquisition activity.
• Schools that are able to act nimbly in diversifying to create new, additional revenues will do so.
• Pupil numbers will be affected by the introduction of VAT on fees.
• For some schools, operational cost pressures will lead to financial distress and an increase in closures.
• In the event of school closures, assets will swiftly be acquired by SEND education providers, or for alternative use.
• Stronger, better-placed schools are likely to thrive on the back of anticipated school closures, which invariably may result in greater demand for some school places.

Considerations for those contemplating selling

If you are considering selling an independent school this year, here are some key things to consider first:

• Have you spoken with your accountant about the potential tax implications and best structure of the business and property to achieve a sale?
• Is your school operated as a charitable trust? If so, you will need to have a Charities Act valuation in place for any disposition?
• If you are looking to sell a trading concern, do you have the latest up-to-date accounts and have you prepared trading projections for the next few years so that purchasers have visibility of how the business will be affected by the VAT and staff cost changes?
• Not everyone is looking to sell immediately, which is totally understandable. Engage a business agent early to help you plan for the future so that when you do wish to sell, the school is in the best shape possible with no unexpected surprises.

Richard Green is director and lead valuer, childcare and education, at business property advisor Christie & Co

Richard Green