Finding the funds for school
PUBLISHED: 14:06 21 February 2012 | UPDATED: 21:04 20 February 2013
There's no easy way to save for your children's education - so get professional advice.
Finding the funds for school
Theres no easy way to save for your childrens education - so get professional advice.
If there is anything families can learn from the ever-increasing cost of school fees, it is to start saving early. Starting to invest regularly from the point when a child is born will only give ten years before they start secondary school, so taking advice on what might be suitable, and being creative within the family is essential.
It is possible for school fees to provide a useful Inheritance Tax (IHT ) planning structure. IHT is charged at 40 per cent on the excess of an estate over 325,000 (or 650,000 for a married couple). A popular method of reducing the size of an estate is to make regular gifts out of income; as long as the money gifted does not affect the lifestyle of the donor and cause them to dip in to capital, then sums can be passed on without any negative IHT implications.
The benefit of this is that family and in particular, grandparents can use their accrued wealth to provide a regular income which is then gifted on. This money can be used to pay school fees. Lump sums of capital can also be gifted, but these need to be survived by seven years in order to be efficient for IHT purposes.
Eamonn Daly, a Partner at Lodders Solicitors LLP, specialises in Trusts and Tax matters. He advises that it may be more tax efficient for grandparents to gift a lump sum into a trust for the benefit of the grandchildren. The income gifted by grandparents will already have suffered income tax at their own rates, which could be up to 50 per cent, said Eamonn. If a lump sum is held for the grandchildren, their lower tax rates and unused exemptions will apply, making the arrangement very tax efficient.
A trust structure also provides flexibility to allocate funds and deal with any remaining balance, although as Eamonn says, it is unlikely that there will be much left over after sixteen years of school and university!
William Self, Managing Director of Self Financial Planners, says that despite stock market volatility, it remains one of the best options for people looking for capital growth. Historically, shares have almost always outperformed savings accounts over longer periods, especially with the Bank of England base rate at 0.5 per cent, he added. ISA and Junior ISA accounts offer an excellent facility for parents looking to save money, however William notes: Junior ISAs are more useful for higher education funding than for covering school fees.
What is clear is that there is no easy scheme or one size fits all option where school fee payments are concerned. Taking advice from professionals who have proven expertise in this area will ensure that all the relevant options and their effects are properly dealt with.