When considering an independent education for your child, one of the biggest concerns for parents is how to manage the cost of sending them to an independent school.
With this concern in mind, SCIS spoke to Dave Roberts, Director of Chiene and Tait, a chartered accounting firm in Edinburgh.
Dave offered some great advice for parents who are unsure about how to take the first steps towards budgeting – keep reading to find out how you can best manage school fees…
When is the best time to start planning for school fees?
“As soon as possible, preferably as close to the date of the child’s birth, to give yourself as much time as possible in advance of the child starting school.
“In general, it costs on average £195,000 to put a child through private school education (based on P1 to S6 – an increase of over 20% since 2012) therefore the sooner you can start saving the better!
- Decide as early as possible when you want to send your child to an independent school
- Save as much as you can each month
- Contributions from grandparents of up to £3,000 each per annum per child would be exempt from inheritance tax; contributions of more than £3,000 would be ‘potentially exempt’”
Are there any methods to help reduce the cost of paying independent school fees that can make the cost of school fees less discouraging?
“Yes – there are several different opportunities available. Professional advice is recommended. The methods include:
- Set up a family business or trust
- The children could then be named as shareholders or beneficiaries
- Utilising an existing company
- If you have a company can put the school fees through the company and this will be treated as a benefit in kind to the parents
- Grandparent contributions
- As mentioned contributions from grandparents of up to £3,000 each per annum per child would be exempt from inheritance tax.
- Contributions made to a family trust may offer greater control and would avoid the ‘parental settlement rules’
- Utilise an ISA
- Make the most of your ISA tax-free allowances. The ISA allowance for 2019/2020 is £20,000, and growth and withdrawals are tax-free.
- Pension withdrawal
- Under the new rules, those over the age of 55 may withdraw 25% of their pension pot as a tax-free lump sum, to help pay for school fees (please note this will reduce your future income in retirement).”
Can I plan for future fee inflation?
“Fees, on average, increase by 4% per year. External factors may influence increases in school fees, including pension increases etc. There is no set plan to help prepare for future fee inflation, but you do need to be aware of the average annual inflation rate and adjust your finances accordingly.
“Some independent schools offer an option to pay fees upfront in one lump sum, known as ‘advance funding’, which could protect you from inflation of fees in the future.”
What is a school fee plan?
“Several external providers offer this service. There are three main options.
"One is a monthly direct debit- most schools offer this type of plan. If this service is not offered, you may want to consider an annual plan.
"External providers offer an annual plan. Here, you pay monthly contributions to the external provider who in turn pays the school. The payments would span the academic year and would need to be renewed each year.
"With a lifetime plan, the external providers may offer a school fee plan to cover the entire duration your child is at school. Normally, you pay one lump sum towards the beginning of the plan and with regular contributions throughout, which are invested in unit trusts. Units are sold on a regular basis to pay for school fees.”