Make sure that your numbers add up
School fees planning is something that requires a great deal of early thought and preparation. The earlier you start planning, the greater the potential to benefit from investment gains and the greater the choice available about how you can invest in your child’s future education. Having decided to educate your child or children independently, it is important to take appropriate advice to ensure the continuity of their education.
It is also essential to be fully aware of the ongoing financial implications and to be confident that you can afford the fees throughout the selected term. You may currently be looking to spread the cost of fees, either by paying for the fees by investing a lump sum or arranging a regular savings vehicle to provide funds to cover future fees.
There are a number of schemes available that are designed to help you spread some or all of the school fees. The purpose of these plans is to improve your cash flow and hence make school fees more affordable.
If you find yourself in the position of having a lump sum that you could invest specifically to meet the cost of future school fees, there is a range of plans open to you. Early investment of capital may at best avoid the need to use income for providing for school fees in later years, or at worst go a significant way towards reducing reliance on income.
The tax efficiency, flexibility of approach and your attitude to investment risk are important considerations. In addition, there could be opportunities for the effective use of trusts as part of the planning process.
Regular savings for school fees can also help pay for future costs and should be started as soon as possible. The longer you save, the less impact there will be on income when school fees fall due. There are many plans available that can be tailored to your individual requirements, leaving you with the flexibility to use funds at your discretion.
Trust planning can also be useful for grandparents who wish to make provisions for school fees and achieve inheritance tax benefits at the same time. However, trust planning is not suitable in every situation. Trusts offer the benefit of transferring the tax liability on future income and capital gains to the children to utilise their personal annual allowances. Chargeable gains on life policies may also be re-assigned, which could avoid a higher rate tax charge. It is important to take professional advice on the correct trust arrangements for the investments held.
It may also be possible in some circumstances to transfer an existing capital gain to the trust, avoiding the need to settle the tax bill on transfer. The capital gain will later be assessed against the beneficiaries or the trustees; however, indexation relief will be lost.
The value of investments and the income from them can go down as well as up and you may not get back your original investment. Past performance is not an indication to future performance. Tax benefits may vary as a result of statutory change and their value will depend on individual circumstances. Thresholds, percentage rates and tax legislation may change in subsequent finance acts.