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With average day school fees costing £5,218 per term, and average boarding schools costing £12,34411 per term, it’s not surprising that anyone wanting to send their children to private school needs to start the financial planning process early.
If you know early on that you want to send a child to private school, you have a highly valuable five-year window from when they are born to the primary school starting age. If you only plan on sending them to a private secondary school, you obviously have longer to save. By starting to plan early you can prepare for the anticipated expense and may be able to build a substantial pot of money ahead of your child starting school.
Regular savings plan
One of the simplest ways to start building a fund to pay for school fees is to establish a regular savings plan; the earlier you begin, the more time you have to ease the financial burden when the time comes for your child to start school.
Aim to be as tax efficient as possible
When it comes to saving for your child's education, tax efficiency is critical. Using an Individual Savings Account can be an effective way to do this. In the current tax year, you can invest up to £20,000 per year into a Stocks and Shares ISA, meaning couples can jointly save up to £40,000 a year.
The benefit of using an ISA to save is that any gains remain tax free, and you can access it (should you need to) at any time without penalty.
If you’re thinking specifically about saving for your children’s university fees, a Junior ISA may be more suitable. With a current annual allowance of £9,000, this type of ISA is designed explicitly for children, although parents should be aware that the funds within it belong to the child and cannot be accessed until they turn 18.
By investing in tax-efficient savings vehicles like these, parents can ensure they make the most of their savings while providing for their child's future education. You would need to factor in that school fees may increase each year, so it’s also important to account for this by either investing in something that will grow with inflation or by setting aside extra money each year to cover for any increased costs.
Help from Grandparents
Gifts made by grandparents can be a great way to support family during their lifetime and can make all the difference to a school fund, and they may also prove to be tax efficient.
One way would be to make a gift out of surplus income – as the name suggests, this applies to any income left after all your regular outgoings have been paid. There are specific rules that need to be followed when considering using this method, however if regular financial gifts follow these criteria, it means that the gifts would be exempt from Inheritance Tax (IHT):
1. The gifts must be made out of your income.
2. They form a part of your ‘normal expenditure’ and are paid out on a regular basis.
3. The payments should not have any impact on your own standard of living.
You can find out more about this exemption and the criteria that apply on the gov.uk website, at www.gov.uk/inheritance-tax/gifts.
Other ‘gifting’ options
Another ‘gifting’ option would be to provide a gift to a child under the annual £3,000 'gift allowance' Again, this is exempt from IHT liability. More significant amounts can also be made free from IHT if the benefactor survives for seven years after making the gift.
IHT is a complex area, and advice should be sought on tax planning from a certified wealth planner before making decisions on gifting for school fees.
Preparing for school fees can be overwhelming but remember that careful planning and using the appropriate strategies can help you achieve your goals.
5 takeaways to help fund your child’s education:
1. Plan ahead to start as soon as you can.
2. Look at a range of options, such as paying from your income, investments, or gifting from grandparents.
3. Think about what else you’ll need on top of fees, such as music tuition or trips.
4. Commit to being able to pay for the duration of their school life.
5. If you’re paying from your salary, ensure that your income can continue to support these costs in the event of premature death or ill health; you may want to consider taking out life cover, critical illness cover and income protection.
1 2022 | ISC Census and Annual Report 2022 | ISC
Please note, The Financial Conduct Authority does not regulate advice on taxation, Trusts and Estate Planning.
Please note: This article is for general information only and does not constitute advice. The information is aimed at retail clients only.