By Matthew Kneller
In this article we look at some of the different things to think about when considering funding private school education for your children.
Starting Early
It is always sensible to begin planning for school fees as soon as possible even if there is still some doubt as to which school will be chosen. By starting early, monies can be put aside and left to hopefully grow before school fees need to be paid.
School Fees Inflation
Over recent years, school fees have increased at a much faster rate than earnings and this can put pressure on those parents who are funding school fees out of their earned income.
Paid From Income
For many parents, school fees are simply paid each term directly from earned income. Many professionals take this approach, prudently ensuring that there are sufficient monies available at the start of each term.
For those who receive an annual bonus, this can be set aside to pay for school fees. Investment bankers are a good example of those taking this approach as their bonuses can be a large portion of their overall remuneration. Of course, it may be prudent in years when a good bonus is received to keep some monies in reserve in case of leaner future years.
Investing a Lump Sum
Where a significant amount of capital is available, for example, from an Inheritance, it can make good sense to invest this and to draw down a combination of income and capital each year to pay for school fees.
For example, where the investment time horizon is relatively long, we typically construct school fees portfolios which contain fixed term deposits to fund the early years with holdings in higher growth investments to fund school fees in the later years.
School fees portfolios can often also be invested in a tax efficient manner by utilising ISA allowances and the like.
Grandparents
Often grandparents are willing to pay school fees and this can also prove tax efficient from an Inheritance Tax (IHT) planning perspective. For instance, where regular gifts are made out of income, these can be considered to be automatically outside of the grandparent’s estate.
In some cases it may be sensible for a trust to be set up for the children.
Property
It is possible to release equity built up within a property and the most popular way to achieve this is by way of an offset mortgage.
Financial Assistance
This can take the form of either scholarships, bursaries, charitable assistance or other smaller awards. A scholarship is usually offered by schools to attract the most gifted pupils (be it academic, artistic or sporting) and the process can be competitive. A bursary takes the form of a grant from the school and is usually means-tested.
Protection
Funding school fees is a huge financial commitment that can span many years. It therefore makes sense to ensure that school fees can continue to be paid in the event of accident or illness or in the event of death and there are a number of protection policies available that are appropriate for this purpose.
Next Steps
Paying school fees is a significant commitment and it therefore makes sense to consider all of the options available and to begin planning as early as possible.
If you would like to discuss your schools fees planning with one of our Chartered Financial Planners, then do get in touch on 01249 700404 or email matthew.kneller@fp-fp.co.uk
Disclaimer
This article contains the current opinions of the author and does not represent a personal recommendation. Information contained herein has been obtained from reliable sources but cannot be guaranteed. No part of this article may be reproduced in any form, or referred to in any other publication, without express written permission from Fresh Perspective Financial Planning Ltd.