Managing the cost of independent schoolingPosted on 5th Jul 2016 in Which London School?, School Fees Planning Tweet
Tim Healy, executive director at Quilter Cheviot Investment Management, offers some advice on managing the cost of school fees...
Putting your children through independent schooling does not always come easy, financially speaking. Although a recent census by the Independent Schools Council found that between 2014 and 2015 private school fees were subject to the lowest annual increase since 1994, they still rose by an average of 3.6%. So costs remain on the up and, over the course of a child’s education, they represent a substantial sum.
As with any major financial outlay, early stage planning can make a big difference. By using a combination of cost spreading, savvy saving and various tax efficiencies parents can make the sometimes daunting costs of private schooling far more manageable.
Once you’ve decided to go down the independent school route, it is important to start planning for the associated costs at the earliest opportunity. Obviously, planning for independent schooling at secondary level will allow more time to study the options and it will also mean more time for saving. Whether looking at primary or secondary schooling though, the following approaches can be considered when it comes to easing the school fees burden.
Take full advantage of tax efficiencies
There are a number of tax efficient means to help with the cost of independent school fees. Parents should know, for example, that any income from gifts given directly to their children is regarded as a child’s own income. As such, a child’s personal allowance of £10,000 is available to use.
An increasing number of people are sourcing support from grandparents when it comes to covering school fees and tax efficiencies can come into play here too. Advantage can be taken of a grandparent’s £3,000 annual gifts exemption from inheritance tax, on a yearly basis where individuals are wanting to make a regular contribution to their grandchildren’s schooling.
Tailor your investments
Having efficient investments in place can be very helpful when it comes to building a fees pot. Investing in UK gilts can be very tax efficient, for example, as any capital gain is tax exempt.
Another strategy to consider is investing in funds. The UK equity market is currently expected to yield roughly 4% for the current year and when compared against the very low interest rates offered by banks at present stock market investment clearly leads the pack in terms of value.
Of course, it is important to remember that stock markets are notorious for exaggerating fundamental economic trends and understanding how this can impact upon your financial investment over the short, medium and long term is essential. By nurturing returns though, efficient investments could enable you to withdraw money when needed while continuing to save once education has started.
Elsewhere, the tax free advantages of an ISA make it an ideal choice for parents planning and saving to pay for private schooling too. If both parents use their full ISA annual allowance, in eight years a family could have a tax free investment pot of about £300,000. This can then be used as a tax free supplement to an existing income when a family starts paying school fees, or it can simply be drawn upon to pay the school fees.
Seek solutions with schools
Beyond investment and tax efficiency strategies parents may also look to lessen the pressure of costs by spreading them over a longer period of time. Many private schools are open to individual payment schemes, so it’s advisable to strike up an open dialogue with the school as soon as you identify it as a preferred choice. In some cases it will be possible for agreements to be put in place that enable parents to begin payments several years before a child joins their chosen school and finish payments after the child has left.
Whichever methods are utilised, expert advice and planning at the earliest opportunity helps to pay for the education you have chosen. At Quilter Cheviot we understand the needs of clients who are looking to develop investments that will support the cost of their childrens’ education. Our aim is to help our clients fulfil their objectives over the long term and our investment process is central to achieving this goal. By combining the in-depth analysis of our dedicated research teams and the talents of our experienced investment managers, we can provide clients with a truly unique resource. It allows us to generate an investment process that is sufficiently agile to keep ahead of today’s constantly changing markets, and flexible enough to incorporate the investment requirements of our clients. We choose from among the best and most suitable investments to meet your objectives, whether the priority is growth, income or capital preservation. In the case of being able to raise school fee funds, we will work hard to help you achieve that objective.