Ben Hirst of Future Wealth Management offers expert advice on raising funds for a private secondary school education
You want your children to have the best education possible, yet private school fees can be costly. The money you spend on your kids’ education could be one of your family’s biggest expenses.
Finding room in the family budget to accommodate these fees is a daunting prospect for most people, especially on top of the already surmounting living expenses, mortgage repayments and bills that we all cope with
So what are the best financial strategies to put in place to save for your children’s private education?
The importance of saving early
Save early, save often – lots of affordable amounts over time will add up, and you’ll benefit from the effects of compound interest. Ideally, start a savings plan as soon as your child is born. If you save £500 a month from the day your child is born, the future value of this at age 11 when they would go to high school would be £85,242 at a 5% return.
Set yourself achievable goals and do your research well
It can be demotivating aiming to save the whole amount required for a child’s education. The aim is mainly to have a nest egg to help absorb education costs, not necessarily pay for the entire education. Breaking the ideal outcome down into manageable chunks can help you stick to your savings plan.
Look at what your local private schools are charging for term fees but then consider whether you will be sending your child to private school in primary as well as high school. The cost of boarding fees can add a hefty additional expense to your school fee savings plan. It can be a major financial decision to live close to the school you want your children to attend but could potentially save you massively in the longer term.
Look for investment growth
Get the markets to do some of the ‘heavy lifting’. Think long term and don’t invest too conservatively. Invest in growth assets to optimise investment horizon, risk and returns. With an current inflation of around the 3% mark, you run the risk of your savings going backwards if you invest the money in cash only.
Find the most tax-effective investment vehicle
ISA’s provide tax-free investment growth and have a £20,000 per annum allowance. Both allowances can be used if you are a couple so you could put up to £20,000 per financial year into each ISA investment plan.
Paying fees up front using advanced schemes
Tax breaks given to schools mean that, if you can afford it, there are advantages to paying several years’ fees as a lump sum in advance. Many schools will offer to put that money in low-risk investments, and because of their charitable status, they’ll avoid paying capital gains tax on any returns they make. In exchange, parents are offered a discount on their child’s fees, and the school pockets the remaining returns.
Discounts are also sometimes available if you pay fees in a lump sum in advance to beat inflationary rises, and a few schools offer reduced fees if you send more than one child to the school
Bank of Grandparents
Grandparents can help with school fees and reduce their IHT liability by using their annual exemption allowance of £3,000 per person. They also have the right to carry over any unused annual exemption from a previous year into the next.
Bare trusts are also often used by grandparents who want to help with school fees. Under this type of trust, grandparents are trustees and decide how their money is invested. The child is the beneficial owner and takes ownership at age 18, but until then, the trustees can withdraw money for the benefit of the child, for example, to pay for school fees.