There are some clear benefits of having your children educated privately.
They will enjoy the advantages of smaller class sizes, with increased emphasis on one-to-one teaching. They could also benefit from a wider range of well-funded extracurricular activities than they would usually be able to access in the public sector.
However, the cost of private education can be prohibitively high for many people. According to a Financial Times report in August 2022, the average total cost of a private education is £218,000 –almost double that if your child is a boarder.
Given those costs, it’s unlikely that many parents could pay the fees without a second thought. So, read about seven steps you can take to help make such a big outlay more manageable.
1. Start to plan as soon as you can
As with all big financial commitments, you should always have a plan in place before you start.
To begin with, you’ll need a clear understanding of what the cost to you will be. Much of this will depend on your personal circumstances: how many children you have, whether they are going to board, and which school(s) you want them to attend.
Ascertain how long you’ll be obliged to pay fees, as many schools offer a preparatory option from age seven rather than joining at secondary school age.
The sooner you know how much you’ll need to pay, the sooner you can start planning to afford it.
Compounding interest, and the benefits of long-term investment growth will both help you, so the quicker you can start setting money aside the better.
You’ll also need to be confident that paying school fees is a route you want to go down. Your child’s education is clearly a high priority, but are you willing to potentially jeopardise your future financial security to provide it?
2. Consider asking family members for help
Financial support from relatives is a popular way of funding school fees.
It’s possible that, subject to their means, your parents may prefer to help their grandchildren during their lifetime rather than leaving their wealth as an inheritance. They may also appreciate the chance to see their financial assistance paying dividends with a tangible outcome at the end of it.
A key consideration for you, however, will be to ensure that they aren’t negatively affecting their own lifestyle by their financial commitment and sacrifice to helping you.
We would also recommend you, and they, get specialist tax advice before making any firm commitments.
3. Investing your money can help you meet your financial target
If you’re going to set aside money to fund your children’s education, it’s important to do this as tax-efficiently as possible.
A common and straightforward way to do this is by capitalising on your full ISA allowance each year.
Remember both you and your partner have a separate annual allowance of £20,000 in the 2022/23 tax year.
Any profits generated in an ISA are free of Income Tax and Capital Gains Tax. By using a Stocks and Shares ISA you can invest the money saved over an extended period and realise any gains free of tax.
Other investment options, which can be tailored to help you cover the cost of school fees as tax-efficiently as possible, include investment bonds and offshore investments.
There are also opportunities for grandparents to invest in the same way, as well as enjoying the tax-efficient nature of trusts.
In all these cases, we would recommend you get expert advice to ensure you invest your money as effectively as possible, while avoiding mistakes that could lead to an unexpected and unwelcome tax bill.
4. You could use your pension fund to help meet the cost of fees
Under current pension rules, you can take 25% of your pension pot as a tax-free lump sum at age 55, rising to age 57 in 2028.
This could be used to pay for private school fees, either all or in part.
However, before you decide on this course of action we would, again, strongly recommend getting expert advice.
This option may have an overly detrimental effect on your future income in retirement. Additionally, drawing from the taxable element of your fund could also affect the amount of money you could tax-efficiently contribute to a pension in the future.
5. Borrowing the money could be an option
Investing isn’t the only way to get the cash you need to pay for school fees.
You may want to think about borrowing the money. A common method is to remortgage your property and access some of the outstanding equity.
Obviously, you’ll need to be aware of how this increased financial commitment could affect your future finances. You should also make sure that you have sufficient life insurance to cover the extra amount you borrow so that, in the event of your death, your loved ones don’t have to worry about any future school fees commitment.
6. Some private schools run their own funding schemes
As well as considering options to raise the cost of school fees yourself, it’s worth bearing in mind that some private schools run schemes to help parents manage the cost of fee provision.
On top of bursaries, some private schools also offer an “advance funding” option so you can pay the whole cost of your child‘s education in one go. The advantage of this is that they usually discount the cost, so you can get some valuable protection from big inflation rises on fees in the future.
In addition, many schools will give you access to a bespoke investment scheme designed to help you cover the cost of their fees.
You’ll benefit from the fact that private schools have charitable status, which means that the profits on their investments are free from tax.
In return for investing in their scheme, you’ll get a discount on the fees due. They will then pay your fees from the proceeds, with the remaining returns being retained in the scheme.
Get in touch
If you need any advice or guidance regarding school fees, please get in touch with us.
The value of your investments can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.
This article is for information only. Please do not solely rely on anything you have read in this article and ensure that you conduct your own research to ensure any actions you may take are suitable for your circumstances. All contents are based on our understanding of HMRC legislation, which is subject to change.