How to save and pay for private school fees tax-efficiently in the UK
How to save for private school fees in the UK
Investing in your child’s future is one of the most important decisions you can make as a parent.
However, smaller classes, one-to-one teaching and a vast selection of extracurricular activities can enrich your child’s learning and help improve their chances of achieving higher grades but it comes at a significant cost. If you are planning on sending your children to private school then you should start planning to pay for this early.
The rewards of private education can be substantial for your child’s future but careful financial planning is required to make sure that the financial burden does not become overwhelming. Starting to plan and invest early to pay for future school fees can help you to keep up with the rapidly rising cost of education.
How much are private school fees?
You need to consider how many years of private education you want your child to have.
Having this plan in place will help you to determine how much you need to save for your child’s education.
The cost of private education is rising quicker than inflation and is now more than 50% more expensive than it was a decade ago. The average private school costs £20,480 per year*.
If your child has an aptitude for sport or an artistic/musical talent then you may be able to apply for a bursary or scholarship. However, it is unlikely that this will cover all of the fees.
*SchoolFeesChecker, 2022
Benefits of taking financial advice to pay school fees:
Many parents pay for school fees directly from their income, however this can be the most expensive option as it is the least tax-efficient.
A financial adviser at Four Wealth Management will work with you to create a long-term plan to pay for your child’s education. You can consider investing into a Stocks & Shares ISA as any growth is free of capital gains and income tax which can help you keep up with the rising costs of education.
At Four Wealth Management, we use cash flow modelling to illustrate how your future finances could be affected by paying for school fees and we can help you create a long-term plan so you know how much you need to consider investing each month.
If you cannot save the amount you need before you have to pay for the education, your financial adviser can work with you to explore other options.
Tax benefits for grandparents who pay school fees
Some grandparents may wish to contribute towards the cost of private education for their grandchildren. This could be a good way for grandparents to reduce their Inheritance Tax liability as they will be reducing the size of their estate. Grandparents can choose to gift a lump sum which is free from Inheritance Tax after seven years. Alternatively, they can give £3,000 per year which is immediately outside of their estate for Inheritance Tax purposes (£6,000 per couple).
Another option which is outside of your estate immediately, is to consider setting up an Excess Income Plan to pay for the school fees. As long as the payments are regular and are from excess income and your own lifestyle is not impacted by the gift then the money will be immediately outside of your estate for Inheritance Tax purposes. It is worth speaking to a financial adviser as they can make sure you keep the correct records for HMRC.
The value of an investment with St. James’s Place will be directly linked to the performance of the funds you select and the value can therefore go down as well as up. You may get back less than you invested.
The levels and bases of taxation, and reliefs from taxation, can change at any time and are generally dependent on individual circumstances.
Our financial advisers can come to your home address for a meeting, or you can meet at one of our offices in Bristol, Cirencester, London or Cardiff. Alternatively meetings can be on zoom. All meetings can be on a day/time that works for you. Book a meeting online now or call us on 0117 973 0500.
Book a no obligation meeting to create a plan to pay your child's school fees
If you have any queries or would like to arrange a face to face meeting with an adviser for a no obligation review of your personal finances, simply book a call back using the form below. Alternatively, you can call us on 0117 973 0500.
