Education fees tend to leave a nasty hole in the wallet. Jane McGowan learns how families can plan for the cost...
Choosing a school for your child is one of the most important decisions that you, as a parent, have to make. And while there are many fantastic state establishments across the area, South-West London and Surrey also boast some of the leading independent institutions in the land.
With fees averaging around £24,000 per year, however, committing to fund a child through his or her primary school, secondary school and beyond is no small undertaking.
According to Weybridge-based chartered accountant Ward Williams, early planning is essential. Not only will this add clarity to the proceedings, but it can also set out how all parties might stand to gain.
Such a large financial outlay as school fees must not come at the expense of retirement planning or overall financial resilience. Ward Williams advises that any education funding strategy should sit alongside a clear grasp of future income needs, pension provision and family priorities to ensure that support remains sustainable.
“It’s important from the outset to recognise that this is about long-term planning,” says company founder and estate planning director Malcolm McKinnell. “It requires budgeting and consideration of a lot of issues, such as inheritance tax (IHT).
“School fee planning works best when it forms part of a wider family conversation about long-term security. It should not be a last-minute financial decision.”
While various options are open to families, says Malcolm, one of the most popular ways of helping out is via ‘gifting’. UK tax rules allow certain financial ‘gifts’ to be made each year – and in some cases, regular gifts made from surplus income may fall outside IHT. When structured thoughtfully, education support can help navigate future tax complications.
For example, by structuring regular gifts from a surplus income – and documenting the pattern correctly – it is possible to ensure that contributions fall outside an estate for inheritance tax purposes while providing meaningful help for education costs.
“People must have frank and open discussions. As a parent, you need to take into account not only the number of your children, but also how many grandchildren you might have. And do be realistic about other things for which the money may be required. It would be awkward to commit to funding a child’s education only for the cash to run out.”
Clive Perks, chartered financial adviser and founder of Supportive Financial Planning, highlights another possible avenue of assistance: trusts. These can be set up by either parents or grandparents and, as designated education funds, may continue even after the death of the funder.
“University fees are very much in the news at the moment,” says Clive. “And because they are so expensive, the bank of mum and dad often needs to stay open longer than one might originally have thought.
“Setting up a trust is one way of passing on wealth in a tax-efficient manner. It may also fall outside of your estate for inheritance tax, saving your family further money.”
One of the main benefits of this approach, explains Malcolm McKinnell, is that a trust can be set up with the specific intent of funding education. Moreover, by appointing a number of trustees to oversee its outcome, one can prevent the money from being used elsewhere.
“The trustees could be the parents, professionals or a mix of the two. Nowadays, we also have to take blended families into account. A grandparent may want to pay only for ‘my’ grandchildren. A trust can help protect a parent’s assets.”
Despite the many potential benefits, however, there are also a number of issues which people need to understand and with which they need to be comfortable. It is therefore essential for all parties to make use of the professional advice available.
“You don’t know what you don’t know,” reflects Clive. “So you must do your research. A professional can tell you the best way of achieving your outcomes. He or she will be able to advise on a plan and help build the solution that is right for you.”
“Families have to talk openly,” adds Malcolm. “People must take into account the possibility of needing care in the future, and you also have to talk about what happens at death. It requires a holistic approach. A third party can often help with this.”
For further details, visit: wardwilliams.co.uk; supportivefp.co.uk.
