Last year, three separate claims were brought in the High Court against the government from families with children with special educational needs and disabilities (SEND), those attending same-sex schools, and low-paying faith schools.
While the court did acknowledge the negative impact on some groups, including children with SEND and who attend faith schools, it said this was outweighed by the money raised for state sector schools.
The schools and families who were part of the low-paying faith schools group appealed the decision.
But the Court of Appeal dismissed the challenge on Friday.
In their judgement, Sir Geoffrey Vos, Lord Justice Singh and Lady Justice Falk acknowledged that the measure may have “a serious impact” if the families were unable to afford private education which accords with their religious convictions.
“But it is important to bear in mind that they have the option of home schooling if free education in the state sector is not acceptable to them,” they added.
Government lawyers had argued that families who wished to opt out of state-funded education were free to send their children to private school or to educate them at home.