10 September 2015
A helping hand with school fees
September marks the return to school for the vast majority of children. For some, it will be their first venture into the world of education, while others will no doubt already be counting the days until the next school holidays.
For parents, choosing where to send your child can be extremely challenging. Everyone wants their children to have the best possible education and in many cases that’s assumed to be in the private sector.
Research from the Sutton Trust which was published earlier this summer, suggested that thanks to their “assertiveness and articulacy” former pupils of fee-paying schools were likely to earn almost £4,500 more than state-educated youngsters by the time they had been in a job for three years.
The report found that private school pupils have “more confidence to ask for a pay rise or promotion”, whereas state school pupils lack confidence and awareness.
Whatever your view on the do’s and don’ts of private versus state funded education, for many families, educating their children at a public school is the goal they will aim for.
If that is the case, then solicitor Vicky Johnson from the wills, trusts and probate group at B P Collins LLP has some words of advice which may come in useful when planning ahead for the next stage in your child’s future school career.
A tax efficient approach
It makes sense to consider the funding of education as just one element of your family’s overall financial plan, something to be achieved in as tax efficient way as possible.
“There are a number of different tax efficient measures which can be taken to help with school fees, or indeed with other financial support for children,” said Vicky.
“Setting aside monies for the payment of school fees is seen as a form of estate planning as, if these are paid out of excess income without affecting usual day-to-day living standards, they will normally be exempt for inheritance tax purposes. School fees paid by parents would also be exempt as a gift for the maintenance of the family.”
Grandparents will often ask for advice on how they can help their grandchildren financially, perhaps by paying school or university fees, or giving them money for a deposit on a car or a house.
One option popular with the older generation is to set up a “bare” trust, which can be especially useful if the intention is to provide help with school fees.
Although while under 18, the child cannot have access to the money, it does mean that if income tax or capital gains tax is due, this can be set against the child’s own personal allowances. Once the child does reach 18 however, he or she will be able to use the money as they wish – something some grandparents might be keen to avoid.
If you have a child with special needs and qualify for state funding but still want to opt for private education, make sure you don’t lose this contribution - your solicitor can advise on the best way to protect the funding with a trust.
Vicky explains that the law allows an individual to give away an annual allowance of £3,000 as a simple gift, although points out that people have to be aware of the rules around anti-avoidance provision for income tax purposes.
And if money given to your children produces an income in excess of £100, either directly or indirectly via a trust, then that money can still be taxed as the parents’ income.
Further examples of tax efficient investments include transfers into trust, which allow individuals to give money away while maintaining control; and also taking out life insurance policies, which will eventually produce a cash lump sum.
Looking further ahead and beyond school, such time as children marry, each parent is allowed to give the sum of £5,000 inheritance tax free as a wedding gift, while grandparents can each give £2,500.
“Planning ahead as far as possible can make a real difference and using some of the points outlined above can help ensure the money is used at the right time, for the right purpose, and it gives everyone peace of mind to know a little part of the future is taken care of,” concluded Vicky.
“It is however, really important to seek independent legal and financial advice about the most effective way to secure a solid financial future for your family as everyone’s circumstances are different.”