School Fees PlanningPosted on: 11 September 2008 by Gareth Hargreaves
Graham Kerner explains how families can fund school fees and the importance of early planning.
Another school year and another set of fees to face. For some parents, the funding of school fees can be a cause of considerable stress and anxiety.
Private education is the largest investment undertaken by the middle classes, once they have bought a house, according to Country Life. Furthermore, it is not getting any cheaper. Latest research shows that private school fees have risen by 40 per cent in the last five years, with the cost of private school education increasing by more than twice the rate of inflation since 2003. Over the same period, retail prices rose by 18 per cent, according to Halifax.
Nevertheless, parents continue to recognise the value for money that independent education offers, and a recent survey by the Independent Schools Council found that record numbers of children were today attending independent schools.
The key to affording fees is to make plans as early as possible. For example, if you start saving soon after a child is born, you have ten years to build a fund for when the child goes to secondary school.
It is important to try to give children a head start to provide them with a good education and get themselves established when they grow up. Saving early can be the difference between whether they can afford to do what they would like when the time comes, or not. With the cost of growing up continually rising, starting early assumes increasing importance.
It is therefore wise to start investing as soon as you can so that your money has plenty of time to grow. This is true whether you wish to save on a regular basis or invest lump sums as and when you wish.
Even small amounts of money saved on a regular basis can grow given time.
For example, if you invested £100 a month in a fund - assuming growth by 6 per cent each year, with an annual charge of 1.5 per cent and an initial charge of 5 per cent on each contribution, you would see a return of £14,700 in ten years. If the investment was £250 a month, the return after ten years would be £36,900, while £500 a month would yield £73,800 over the same period.
The figures used for these examples are not guaranteed and are not maximum or minimum amounts. What you get back will depend on how the chosen investment grows and the tax treatment of that investment. You could therefore, get back more or less than this.
With school fees, there are several schemes available to help make them more affordable, and an experienced wealth manager can draw up a bespoke investment plan that will allow access to funds and meet the need for tax efficiency and flexibility.
Perhaps a Unit Trust portfolio is right for your needs or you might want to invest through an Individual Savings Account (ISA). You can save a regular amount every month or invest lump sums whenever you like. In some circumstances it may be possible to get income tax relief on the money you save for them.
Even if parents have not been able to save ahead, there are still other funding vehicles available.
For example, releasing equity from your property to raise capital is one option. Most people remortgage their property in order to reduce monthly repayments, but it is also an excellent tool for releasing capital that has built up in the property. The amount that you can access will obviously depend on the amount of equity available in the property, and how much you need to borrow to fund all or part of the payment of school fees.
Trust planning can be a useful tool for grandparents who wish to make provision for school fees and achieve Inheritance Tax (IHT) benefits at the same time. If they make regular payments from their income without reducing their lifestyle, then these gifts fall out of their estate immediately and are not counted as part of their estate for IHT purposes when they die. Another option is to give a lump sum for their grandchildren’s education and provided they survive for a further seven years, the gift is free of IHT.
Grandparents might also want to consider other solutions, such as life assurance, to significantly increase the funds created for grandchildren. This can be very useful when there is more than one child you wish to provide for.
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