Families often need a lesson in looking after their money when planning a private education.
Even though they have the best of intentions, the figures just do not add up to cover the many thousands of pounds needed to put just the one child through a private education – let alone two or three.
Families fund education in three main ways:
- Paying fees from their own income and building a reserve fund on hand to supplement the cost. If both parents work or have the cash resources, they might fund half the cost of education from income and need an investment plan to pay the rest
- Investing regular amounts in a savings plan to give an income to pay education fees. These parents may have small but regular amounts to save over a long period.
- Investing a lump sum, like a gift or inheritance to give an income to pay education fees.
Saving to fund education fees is basically the same as setting up any other investment plan, but professional, unbiased advice can help whatever the circumstances.
How much will school fees cost?
Currently, prep boarding fees work out from £4,250 to £6,250 a term and senior boarding from £5000 to £8250. You also need to add in uniforms, games equipment and other incidentals.
The fees depend on the standard of school and the age of the child. Day fees will be less.
Take an average of £5,000 a term, multiply by three terms a year over 13 years covering school from when a child is five until they are 18 and the figure is a staggering £200,000.
Once you have this figure, calculate the time between now and when your child starts at the school. This will give you some idea of what you need to save and the timescale to meet that amount.
Then, sit down with an independent advisor regulated in the UK by the Financial Services Authority, and draw up a strategy that matches your objectives.
Obviously, if you have more than one child you want to put through school, then this has to be factored in to the equation as well.
Don’t forget to consider interest rates and inflation as these could have a dramatic effect on your investment. One solution to offset these is saving more than you need as a cash reserve.
Keeping private education costs in the family
Parents and grandparents contributing in to a pot often pay education fees. Tax effective investments that may involve taking specialist advice about trusts or family foundations. Although this may seem expensive, this good advice should serve the family well over the years.
Often, if the family is living across several countries, a spread of investments is a strategy that can take best advantage of tax rules in different countries, which is just one service that a leading Wealth Management firm can offer.
For instance, if the grandparents live in the UK and aged 50 or over on the 5 April 2010, they can invest up to £10,200 in an ISA with half as cash and the balance in other investments like stocks and shares.
If the parents live overseas, then many investment options are open to them, including international life insurance savings plans.
Estate planning to consider how to legitimately avoid inheritance taxes in the UK and overseas is an important part, of any school fee strategy.
For instance, the grandparents might decide to skip a generation and leave their estate in trust to their grandchildren with the parents as trustees to fund education fees.
Other tax effective investment opportunities to consider include:
- Children’s annual income and capital gains tax allowances
- Options to re-assign life policies and investment bonds
- Tax-free returns available through offsetting against a personal mortgage
- Opportunities available through offshore investments
When to start saving for private school fees
Forward thinking parents should start saving as soon as they can – even if they don’t yet have any children. The longer the investment period, the more likely the fund will grow without too much strain on the budget for other expenses.