Tax planning for school fees
As the country went into lockdown and schools closed their gates, the number of parents looking into the cost of private schools went up. With an average annual cost of around £15,000, planning for school fees might seem impossible. Here’s how to plan for school fees and make it tax efficient.
There are 625,000 children being educated in around 2,600 independent schools, (Independent Schools Council). If you’re looking for your children to be one of them in the future, here are some ways to save and cover the costs.
Family business: A plan for school fees?
If grandparents set up a family business, they can list grandchildren as shareholders. School fees can then be paid using the dividends from the business. This is not the easiest of options clearly and tax advice must be taken, to ensure compliance with HMRC.
Gifting to grandchildren
Grandparents can help in other ways if they’re able too. By putting money into a pot for grandchildren, they can reduce their estate and minimise IHT payments for the future. They can give regular gifts free of IHT (up to £3,000 per tax year), if the grandparent survives seven years after making the gift.
Could your house fund schooling?
With many people seeing the value of their homes increase during ownership and mortgage rates currently low, re-mortgaging good help raise funds for schooling. However, by doing that you will need to pay back the lump sum and interest, so in the long run, you pay more for the school fees.
Maximising your individual savings allowance
If you have the income to save, and you still have some time before your child starts school, it’s important to maximise your individual savings. Both parents can save £1,000 per year, tax free (£500 per year if you’re a higher rate tax payer).
Can you reduce the cost of school fees?
It’s one thing knowing how to save or best pay for private school. But, do you have to pay the full amount or are there savings out there?
Make sure you research the schools. Some will charge more than others. It may be that some are particularly focused on music or sports, so it’s a good idea to take time to look at some options.
Location, location, location – One school may seemingly offer the same but be 10% cheaper. It might just be in a different location. So, be prepared to relocate if you’re serious about the right school at the right price.
Fees paid in one lump sum – Check if the school fees can be paid in one lump sum or if they have to be paid each term. Perhaps you can save some money by paying for the whole year.
Sibling discount – If you have more than one child, ask the school if they offer a discount for siblings.
Parents profession – If you teach in an independent school yourself you may be able to get a discount on school fees. And discounts are also given sometimes to children whose parents are in the Clergy or Armed Forces.
Scholarships and bursaries – Is it possible to get a scholarship for an independent school? Well, according to the ISC, more than a third of pupils at private schools are helped with these programmes. Scholarships tend to be awarded to pupils who have a talent in sport or academia, while bursaries are means-tested and are to help lower income families.
Seek professional accounting advice
Before deciding on a school or investing anything, it’s important to speak to an accountant. They will be able to give advice on the best way to fund the cost of private schooling. Plus, they can make sure all savings, investments and payments are made tax efficiently.
- Start saving for schooling as early as possible.
- Talk to an accountant who can advise you on the best savings options for your income and personal situation.
- Do your research and find out where savings and discounts are available.
For more practical advice and business insights, you can follow us on Twitter and LinkedIn.
About Liz Cordell
I’m an experienced copywriter, with a great attention to detail. Having previously held positions at a global publisher, a top 100 law firm and a Big Four professional services firm, I now work with clients across a range of industries. Whether it’s new content for a website or creating interesting blogs for my clients, I can create engaging copy that doesn’t take a lifetime to read.