My ex-wife and I have three school-aged children and divorced recently. Our eldest child is starting secondary school in September and we had always planned to educate him and his two siblings privately. My ex-wife has chosen a school which charges extremely high fees. In our divorce settlement I happily agreed to pay most of the costs of our children’s education, however with the chancellor introducing VAT on fees I do not think it will be possible for me to pay these fees. Is there a way that I can legally challenge the divorce settlement to change how much of the school fees I have to pay?
Laura Burrows, an associate in Collyer Bristow’s family team, says it is possible to apply to the court to vary a financial order, depending on how recently the order was made or agreed and what changes in circumstances there have been.
To vary an order you must demonstrate, through financial disclosure of your income, assets and other financial obligations, that there has been a significant material change in circumstances to warrant the court order no longer being upheld. Assuming your disclosure confirms that the increased school fees are no longer within your financial means, the court is unlikely to enforce an order where, in its simplest terms, one party can no longer pay. The court has broad discretion to be able vary in these circumstances. Case law has demonstrated that judges will vary orders where the order is no longer in the best interests of the children overall.
Although private school may be your ex-wife’s preferred choice, if the increased cost of those fees is too impactful on other aspects of family life, such as housing needs, the court will recognise that it is no longer in the best interests of the children.
Labour’s Budget confirmed that VAT will now be charged on top of private school fees at the standard rate of 20 per cent from January 1 2025. This will probably result in many paying parents, like yourself, no longer being able to cover the cost.
As a first step, we advise negotiating or mediating, exhausting non-court dispute resolution methods before incurring expensive litigation costs. The court will require you to have considered alternative dispute resolution before issuing your application. It is important to consider that litigation costs to seek a variation could outweigh the costs of the additional VAT and you would need to seek advice on this. We recognise, however, that this depends on the relationship you have with your ex-spouse.
We also recommend discussing the increased fees with the school, as Labour’s reform does not necessarily mean all school fees will increase significantly. It will be at the discretion of the schools as to how much they charge for fees in light of the Budget. Some schools operate hardship funds and bursaries, which may be worth investigating. That said, these are bound to be under greater pressure following the chancellor’s announcement.
Many families will feel financial pressures over school fees, and these issues are best dealt with sooner rather than later. Dispute resolution outside court is both quicker and more cost effective, but if it appears that this is unachievable, we recommend you seek legal advice as soon as you can.
Should I stay in the UK under new non-dom rules?
I moved to the UK from South Africa just before the previous Conservative government’s changes to non-dom tax rules were announced. I have my own business and some offshore trusts and have concerns about when these will begin to be taxed under UK law. I wonder whether I should put down long-term roots here (my children are approaching secondary school age), and how my tax position will be affected from April 6, following the Budget announcements and non-dom changes.
Julie Howard, partner at law firm Boodle Hatfield, says the old non-dom regime used to allow UK residents domiciled overseas not to pay UK tax on foreign income or gains, provided they don’t bring it into the country.
After April 6, the new regime will allow people not to pay UK tax on foreign income or gains — even if they didn’t bring it into the country during the first four years of residency. Thereafter, however, UK income tax and capital gains tax will apply to worldwide income and gains.
Since you say you arrived here shortly before last March you may be eligible to claim this new regime for the remainder of your first four years in the UK. You can receive trust distributions and dividends from overseas companies, for example, during this period and bring them into the UK tax-free. This marks a significant change from the existing regime, providing substantial scope to bring foreign profits into the UK to fund your living expenses or acquisition of UK assets.
Once outside the four-year regime, in addition to being taxed on worldwide personal income and gains, you would also be liable to income and gains realised by trusts you created and retain an interest in, and certain overseas companies in which you hold particular interests.
Our next question
The management at the local golf club where my student son works part-time has told him that they will struggle to remain profitable once they have to pay national insurance on part-time workers, so they will not be replacing anyone who leaves. To ensure that my son keeps his job, could he offer to work as a self-employed contractor who invoices the golf club for hours worked?
Your trusts and personal assets should therefore be reviewed before April 6 2025 to determine any pre-emptive actions, such as reorganising structures ahead of you ceasing to be eligible for the four-year regime. There is also scope for designating offshore income or gains realised between becoming UK tax resident and April 6 2025 under the Temporary Repatriation Facility at a favourable tax rate, which can then be remitted to the UK without further tax.
You should also review the overseas assets you hold personally — once outside the four-year grace period, the income and gains generated by these will be taxable. Gains realised from investments in non-reporting status funds, for example, are taxed at higher income tax rates, whereas gains from investments in reporting status funds will be taxed at lower capital gains tax rates.
Under the new regime, after 10 years of UK residency, your worldwide assets will also come within the scope of UK inheritance tax, with a “tail” of three to 10 years applying to those leaving the UK after this time, depending on their length of UK residence. If you are not staying in the UK long term, you should consider whether to move before you have been resident for 10 years, to avoid the sting in the inheritance tax tail.
The opinions in this column are intended for general information purposes only and should not be used as a substitute for professional advice. The Financial Times Ltd and the authors are not responsible for any direct or indirect result arising from any reliance placed on replies, including any loss, and exclude liability to the full extent.
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