Planning for School Fees

KidAround often features independent schools, which offer a wide range of well-resourced facilities, specialisms and academic and sporting opportunities. Many parents would like their children to attend such a school, and it is essential to plan for this. Antony Reed of St James Place Wealth Management offers the following advice:

SCHOOL FEES – THE IMPORTANCE OF EARLY PLANNING

School fees funding is neither science nor magic. It is quite simply a question of planning and using whatever resources are available.

The cost of independent education is typically to the order of £300,000 per child, yet the vast majority of parents pay their school fees out of income without any significant specific planning (source: SFIA, February 2011).

Regardless of your financial situation there are always reasons why you should plan for future school fees commitments. Whether the fees are readily affordable or not, this is unlikely to be the most efficient way to meet this ongoing liability. Whatever your circumstances, effective planning will reduce the cost of private education.

A key consideration for those looking to fund private education, but one often overlooked, is the impact of rising costs – school fees inflation. According to data from the Independent Schools Council (ISC), between 2000 and 2010 the average fee per term increased by more than 83%. Even though the cost of educating a child at an independent school continues to outstrip inflation year-on-year, parents still believe that an independent education represents real value for money.

A recent census by the ISC found that pupil numbers attending independent schools had fallen only 0.6% in the past year, despite the worst economic recession since the 1930s (Source: Independent Schools Council Annual Census 2010).

Parents would be well advised to consult a financial adviser as early as possible, since a long term plan for the payment of fees – possibly including university as well as school – can prove a very prudent exercise.

There are several solutions available to help make school fees planning more affordable, and an experienced financial adviser can draw up a bespoke investment plan that will allow access to funds and meet the need for tax efficiency and flexibility.

A typical school fees plan can incorporate many elements to fund short, medium and long term fees. Each plan is designed according to individual circumstances with an emphasis on the parents’ specific objective, for example, to maximise overall savings and to minimise the outflow of cash.

Short-term fees are typically the termly amounts needed within five years: these are usually funded from such things as guaranteed investments, cash deposits or alternatively they can be funded from disposable income.

Medium and longer term funding can incorporate investments exposed to real assets such as equities (shares) or property, providing this satisfies the investor’s attitude to risk. Whilst potentially more volatile in the short term, history shows us that these asset classes provide greater returns over the longer term.

Even if parents have not been able to save ahead, there are still other funding options available. For example, releasing equity from 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. In some circumstances it may also be possible to get income tax relief on the money invested on their behalf.

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 to provide for.

To receive a complimentary guide covering Wealth Management, Retirement Planning or Inheritance Tax Planning, produced by St. James’s Place Wealth Management, contact Antony, Associate Partner of the St. James’s Place Partnership on 01787 464 202, by email  antony.reed@sjpp.co.uk  or visit www.sjpp.co.uk/AntonyReed

 

Posted by Tracy Thomas

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