Balancing the books
Funding a good education for children is one of the most valuable gifts parents or grandparents can provide.
Funding school fees is one of the biggest financial commitments a family can make. As a result, it can be a source of considerable concern for some parents.
Yet, even though the cost of sending a child to an independent school has risen, a recent census shows an increase in pupil numbers to 517,113 in 2015 – the highest level since records began in 1974¹. Parents therefore continue to recognise the value that independent education can offer – but it isn’t getting any cheaper.
According to research from the Centre of Economics and Business Research, the annual increase in school fees over the last 24 years has been 6.2% - well above the rate of general inflation. Fees for senior independent schools average around £3,000 a term for a day school, non-boarders at a residential senior school pay around £4,000, and boarders pay in the region of £6,600².
Providing a good education can be one of the most valuable gifts parents or grandparents can give to children. So, while the financial implications can be daunting, the key to affording school fees is to plan as early as you can. Saving soon after a child is born gives ten years to build a fund for when they go to senior school.
Generally, parents looking to fund school fees fall into three categories – those who want to invest a lump sum, those who would like to spread the cost, or parents wanting to set up a regular savings scheme to provide funds to cover future fees. There are several options available to help make school fees more affordable, that can be both tax efficient and flexible.
For example, you could consider using your annual ISA allowance. By investing the maximum amount permitted in a Stocks & Shares ISA and selecting well-managed funds, a very worthwhile sum could be accumulated in the space of ten years.
For grandparents, trust planning* can be a useful tool if they wish to make provision for school fees and achieve Inheritance Tax (IHT) mitigation at the same time. If they make regular payments from their income without impacting their lifestyle, then these gifts are not counted as part of their estate for IHT purposes.
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 help increase the funds created for grandchildren. This can be very useful when there is more than one child you wish to provide for.
With interest rates remaining at an all-time low, and the country still feeling the effects of the recent recession and austerity measures, it is important to make the most of the tax planning options available to ensure your investments are working as hard as possible. And if that ultimately benefits the children in your life with access to the best educational opportunities available, then you are also giving them the best possible head start.
¹ Independent Schools Council Census 2015
² fundingeducation.co.uk, August 2014
The value of an investment with St. James's Place will be directly linked to the performance of the funds selected and the value may fall as well as rise. You may get back less than the amount invested. Equities do not have the security of capital which is characteristic of a deposit with a bank or building society. The levels and bases of taxation and reliefs from taxation can change at any time and are generally dependent on individual circumstances.
*Trusts are not regulated by the Financial Conduct Authority or the Prudential Regulation Authority.