How Tax Savvy Grandparents Can Help Fund Private School Fees For Your Children

By July 29, 2019 August 11th, 2020 Tax Advice
How Tax Savvy Grandparents Can Help Fund Private School Fees For Your Children

Private school is the option of choice for a lot of families these days to ensure their children get the best possible education and start in life. However, there are more than a couple of stumbling blocks to think about if you want to send your children to the best local private school. One of the biggest issues to contend with is the fact that private school costs a lot of money, and the fees can sometimes be significant. This is why it is important to try to have tax efficient ways to structure your finances, some of which may allow you to reduce what you’re paying by way of private school fees.

An overlooked ‘strategy’ in this context is to turn your parents, i.e. your children’s grandparents. Think of it as the bank of grandma and grandpa!

Grandparents who are a little tax-savvy should find it much more achievable to help with private school fees, and to take things forward in the right and legal way. There are a lot of things that play a part in helping you fund private school for your children, and you have to arm yourself with plenty of ideas to work with. Check out these tips that are really going to help you fund the cost of private school, and help you to ensure you’re not struggling financially when trying to make those payments every term!

Basic Planning

The first thing to do is to make sure you start early when it comes to your financial planning and preparing in advance for school fees. Start saving early, preferably through something like an ISA, as this is going to help you build up a nice pot of savings that can be used toward those school fees. This is one of the easiest options available these days, and you can start doing this right away, which makes it a viable option to help with funding. If your parents haven’t topped up their ISAs this year, here’s your reminder to get them to top up!

One of the most appealing elements of an ISA is that it allows you to set aside a lump sum of money that is going to be free from certain tax obligations. The earlier you start, the more you are going to benefit from compound interest, and this is something that can really help. For instance, under the current ISA format in the UK, two grandparents would be able to pay in £200,000 over a five year period. And this is before any of the interest is going to be added; so don’t overlook this as an option when it comes to putting cash aside for funding private school fees later in life.

How Tax Savvy Grandparents Can Help Fund Private School Fees For Your Children

Avoid Inheritance Tax

Potentially lowering an inheritance tax liability is one of the biggest benefits when it comes to grandparents trying to help with private school fees, so you need to look at what you can do to benefit from this. Did you know that your parents can gift up to £3,000 per year to your child with absolutely zero tax implications? This is important when looking at tax efficient ways of funding private school. However, school fees can often climb as high as £14,000 per year in the UK, so how else can you lower the amount you need to fork out?

Well, a lesser-known option is for your parents to give the gift of an unlimited sum of money to your children. As grandparents, they don’t have to worry about the ‘seven year survivorship’ law. This is a rule that states that any financial gifts made three to seven years prior to your death can be taxed on a sliding scale. The best way of achieving this is to make regular payments, but to make them out of income as opposed to capital, and proving that this leaves you with enough income to make ends meet. Avoiding inheritance tax by gifting to grandchildren is one of the best ways tax savvy grandparents are able to help fund private school fees (or other costs) for your kids.

Family Investment Company (FIC)

A family investment company (FIC) is a vehicle that can be used by families as an alternative to family trusts.  Essentially it is a private company whose shareholders are family members.  The aim of a FIC is to maintain control over appreciating assets and the accumulation and distribution of wealth and income in a controlled and structured way.

Avoid Inheritance TaxTrust Fund

A trust fund is a great way of being able to cover the costs of school fees. The financial world can be unpredictable at times, and you want to make sure you protect your money. There are plenty of things that can affect your finances these days, including divorce and bankruptcy. But a trust fund provides your parents with a level of protection for their money. Not to mention the fact that the assets from the trust can generate income that can go towards funding school fees.

The flexibility and control offered by a trust fund is something that makes it the ideal choice for grandparents helping towards school fees. There are a lot of different financial decisions you are able to make with a trust fund, and this makes it perfect for an array of different financial circumstances. You are not allowed to name yourself as a beneficiary, but you will be able to put in whatever the amount of your available nil rate band is (up to £325,000 per person). You could be able to do this without having to pay an IHT (inheritance tax) charge.

Utilise Your PensionUtilise Your Pension

Utilising your pension is one of the best ways of being able to fund private school fees without running into financial hardship. Changes to the rules regarding pensions these days mean that you can take one-quarter of your pension from the age of around 55, and this is going to give you plenty of options. What’s more, you can take this as a tax-free lump sum, which will allow you to make the most of it, and you can use this money towards school fees. However, it might be the case that this is going to come a little late for you to use it towards school fees. So, a neat alternative is to raise your mortgage, so you have an amount to pay off the fees, and then pay it back once the pension lump sum comes through.

Being tax savvy and coming up with some great ways of saving money and funding school fees in the most cost-effective way is so important. There is a lot to think about in this respect, and you have to make sure you plan and prepare in advance. There are plenty of great techniques that can be used to improve the process and make sure you think hard about the different ideas that you can use to achieve this. School fees can soon mount up, and you want to be able to afford these in the best way you possibly can. If grandparents can follow the tips and advice on here, they should have no issues being able to cover private school fees and save on their own tax liabilities as well.

Contact us today for an initial consultation to talk about how you can plan for your and your children’s future in the most tax efficient way. Call us on 020 8872 9138 or request a callback here.

Financial Visibility

Intelligent and innovative tax strategies designed and planned around you, your family and business to optimise your tax position. We can help our clients to fully develop, formulate and better understand their short, medium and long term financial goals for themselves, their families and businesses. We work with clients from a number of sectors, industries and locations, although we have a strong clientele base and understanding of the Dental and Pharmacy sectors which has been built up through significant experience of transactions and related client matters in the Dental and Pharmacy field.