Simon Wong, Chartered Financial Planner at JM Finn, explains how to plan for your child’s private school education .
Are there any ways to cut the cost of a private school education?
Any aspiring parent wishing to send their children to private school will be fully aware of the huge cost to do so, with the average annual cost of a private day school at around £14,000 rising to £34,000 for boarding (Independent Schools Council). There are limited ways to actually reduce the cost but it is always worth exploring with the school if there are any relevant bursaries or scholarships available, which can range from 5-50% discounts depending on the school, so it can be worth nurturing that musical or sporting talent. Secondly, many schools offer a discount for paying all the fees up front. This only works if you have the capital available but sometimes the discount is not attractive enough to make it worthwhile and you may be better off investing the money elsewhere. Alternatively, retrain as a teacher and seek employment at a private school. The only way to really reduce the cost of educating your children is to plan for it and to ensure you are as tax efficient as possible.
How far in advance should you be planning financially for your child’s educational needs?
As ever, the sooner you start planning the better. I would always recommend a young couple to start saving for school fees if they are planning to have children, as the sooner you start saving the more benefit you achieve from compounding your returns. I also regularly have conversations with grandparents regarding their estate planning and more often than not, there is a desire to help with private school fee funding. This can be an extremely tax efficient way to cover the costs either by making a gift or setting up a trust, most likely a Bare Trust. These options can, if correctly structured, reduce the inheritance tax burden, but all require forward planning and above all, expert advice.
“Setting up a bare trust is the most tax efficient method for grandparents to pay the fees. The pros for this are that it is potentially inheritance tax free, can be relatively straightforward to set up and makes use of the child’s tax allowances”
Are there any risks of school fee planning?
Depending on the route chosen, whether it’s to invest your capital in a growth strategy or to focus on reducing a tax burden to increase a future inheritance, there are always risks. Investing puts your assets at the risk of stock market movements and it must always be remembered that past performance is no guide to future performance and as such it is possible you could end up with less than you started off with. Tax efficient strategies are at the mercy of HMRC as tax rules can – and do – change, often without notice. In the current political environment prudence in this regard is essential.
Another risk is that school fee payments are interrupted due to the death of the primary provider. This can be mitigated by insuring the appropriate person(s). The key is ensuring you take appropriate advice from a wealth planner or tax expert who can help put your school fee funding plans into the context of your wider financial situation.
What are the pros/cons of parents/grandparents paying the school fees?
Setting up a bare trust is the most tax efficient method for grandparents to pay the fees. The pros for this are that it is potentially inheritance tax free, can be relatively straightforward to set up and makes use of the child’s tax allowances with any growth held outside of the grandparent’s estate. The cons are the exposure to investment risk and the fact that the child has access to the trust aged 18 which means the assets cannot be preserved in trust for future generations. Gifting is advantageous as it contributes to fees immediately and can be tax efficient by using annual gift exemptions. However, these gifts are limited to £3,000 a year per grandparent and any gifts above this level may be taxable upon death, unless the gift is using gifts out of normal income exemption.
For more information on how to plan for the future, contact Simon at 020 7600 1660 or email to email@example.com
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