Charitable status and independent schools

This note deals with the law in England and Wales except where specifically stated.

Definition of charity

The Charities Act 2011 (a consolidation act) defines a charity as an institution which is established for a charitable purpose and provides benefit to the public. The advancement of education is a charitable purpose and so independent schools are capable of being charities. There is no presumption that any type of charity is for the public benefit. Educational charities, like all other charities, must demonstrate that they are for the public benefit. There is no statutory definition of what this means.

Tax concessions

Charities are able to take advantage of various tax concessions. The Government has stated that no estimate has been made of the savings which might accrue from changing the tax status of charitable independent schools. In September 2019, the Government said that it had no plans to change the tax status of independent schools.

Public benefit guidance

The Charity Commission is required by statute to issue guidance to promote awareness and understanding of the operation of the public benefit requirement. In 2008, it published guidance, including guidance on public benefit and fee charging, in which the Commission set out issues to be considered by charities charging high fees that many people could not afford. The guidance stated that offering free or subsidised access was an obvious and, in many cases, the simplest way in which charities could provide opportunities to benefit for people who could not afford the fees; it also stated that this was not a requirement.

Legal challenges to public benefit guidance

The Independent Schools Council (ISC) was granted permission by the High Court to bring a judicial review of the Charity Commission’s public benefit guidance. This was heard by the Upper Tribunal at the same time as a reference by the Attorney General asking the Tribunal to consider how the public benefit requirement should operate in relation to fee‑charging charitable schools. The Upper Tribunal’s decision, published in October 2011, concluded that, in all cases, there must be more than minimal or token benefit for the poor, but that trustees of a charitable independent school should decide what was appropriate in their particular circumstances. Benefits could be provided in a variety of ways.

Revised guidance

The Charity Commission published revised public benefit guidance in September 2013. The Charity Commission has also provided some specific examples of ways in which charitable educational establishments, such as charitable independent schools, might make provision for the poor to benefit. Some other Charity Commission publications have been revised to take into account concerns raised in debate in both Houses of Parliament on the Bill which became the Charities (Protection and Social Investment) Act 2016.

Partnerships between independent schools and state schools

In September 2016, the Government launched a consultation paper, Schools that work for everyone, which included proposals relating to independent schools. The Government considered that independent schools could do more to benefit children from a wider variety of backgrounds as a condition of enjoying the benefits of charitable status. It proposed that independent schools with capacity and capability would be expected to sponsor academies, set up a new free school, or offer more fully funded bursaries. There would be different expectations for smaller independent schools which lacked the capacity and capability to take on full sponsorship. The consultation paper stated that the Government would consider legislation to remove the benefits of charitable status from schools which did not meet new benchmarks.

The Government’s consultation response, published in May 2018, did not include any proposals for legislation relating to charitable status but it did refer to an agreed joint understanding between the Department for Education (DfE) and the ISC which was published alongside the response. The Joint Understanding set out principles of cross‑sector partnership.

In September 2017, Sir David Carter, National Schools Commissioner, spoke about the DfE’s newly formed System Partnership Unit that is working to support the independent schools sector to broker partnerships and relationships with the state sector.

Labour party policy

Delegates at the 2019 Labour conference voted in favour of a motion that the party should commit to “integrate all private schools into the state sector” in its next election manifesto. This would include the withdrawal of charitable status and all other public subsidies and tax privileges, including business rate exemption.

The motion added: “Endowments, investments and properties held by private schools to be redistributed democratically and fairly across the country’s educational institutions.”

Shadow Education Secretary, Angela Rayner, said “tax loopholes” that benefit private schools would be scrapped by a Labour government in its first Budget.

Further reading

Another Library briefing paper provides an overview of the topics Members commonly encounter relating to fee-paying independent schools in England:

Independent schools (England) (CBP 7972).

The position in Scotland

Charity law and regulation is devolved. The main legislation is the Charities and Trustee Investment (Scotland) Act 2005.

An Office of the Scottish Charity Regulator (OSCR) briefing paper expresses the view that fundamental differences between the law in England and Wales, and that in Scotland, mean that the main principles underlying the 2011 Upper Tribunal decision have little application in Scotland.

In October 2014, a petition called on the Scottish Parliament to urge the Scottish Government to remove charitable status, and thus taxpayer support, from private, fee‑paying schools. The petition was closed in September 2015 on the basis that that the Public Petitions Committee had taken the petition as far as it could, and that the Scottish Government had made it clear that it had no plans substantially to review the 2005 Act.

Following a review of the non-domestic rates system, the Scottish Government stated that it would give further consideration to the recommendation that fee-paying schools should lose their entitlement to a rates reduction, before deciding how to proceed. A Bill has now been introduced in the Scottish Parliament which would remove the rates reduction from mainstream independent schools registered as charities.