Many independent financial advisors are experienced in this field, and claim to be able to help parents shave substantial amounts from their overall expenditure through long-term planning and use of tax-advantageous investing or equity release schemes. Obviously, every parent has his or her own unique financial circumstances and should seek independent advice from a reputable advisor.
Private education is expensive, with top schools charging annual fees approaching £30,000. Add in the cost of uniforms, school trips, music lessons and sports kit, and the bills soon mount up. No tax relief is available on private school fees. Parents may therefore want to think strategically and use all financial weaponry – tax advantages and shrewd investment of equities – at their disposal.
First, they may want to calculate how much it is all going to cost and look for ways to minimise the expense.
Most schools publish their fees and discount structures, and parents can plan ahead allowing five per cent per annum for inflation to work out how much they need to save. They will need to plan for the whole educational period. Continuity is important in education – imagine if a child had to move school a term or two terms before their GCSEs or A-levels, or equivalent? This could be particularly disastrous given that independent schools sometimes follow alternative qualifications such as International GCSEs.
Second, funding options should be considered as early as possible. “Package products” may not be the right answer.
A helping hand
Third, grandparents may be able to help out. They can give £3,000 tax free each year and will be helping out their family as well as reducing their inheritance tax liability. Trusts, where tax liabilities can be re-assigned, may be a better option in which case independent financial advice should be sought.
Fourth, where parents have a lump sum available that they can invest at an early stage, they are in a strong position. They have the full range of investment options available to them and may want to hire professionals to manage their capital effectively. The school itself may even be able to help – Harrow school, for example, advertises an advance fees scheme under which parents pay a lump sum in advance which is then invested to pay the full cost of their child’s education. Alternatively, parents may want to retain control of their money.
Some parents pay the fees by saving up, setting aside a portion each month. The key to all fee payment plans is to start as soon as possible. Many parents begin their savings or investment plans before their children are born. Other options include spreading the cost over a longer period of time, using an equity draw-down plan, loan facility or re-mortgage. Using ISA allowances is another option. Savings should go in the name of a parent who is basic rate taxpayer.
The road ahead
It doesn’t stop at school of course, as children will continue to further study. Many universities have already signalled they intend to charge the maximum £9,000 per annum fees. Obviously, that’s before living expenses such as rent, food and travel are taken into account. And then there are gap years and postgraduate courses...
Financial advisors report that they are receiving an increasing number of enquiries from parents worried about the cost of university. Many parents, anxious lest their child begin their adult life with vast debts hanging round their neck, want to plan ahead. University students could easily leave with £30,000 – £40,000 of debt. Some parents may want to pay this off after the students leave university since the students themselves do not have to repay until they earn at least £21,000 pa.
If parents have five or more years to go then they may be interested in collective investments such as unit trusts or investment trusts or stock market portfolios. Cash bonds, corporate bonds and property may suit the more risk-averse parent.
Whatever route a parent chooses, it is important to investigate all options available first. There may be more ways to keep the costs down than they think.
Elizabeth Davidson is a freelance journalist
A lesson plan
Many schools offer discounts for fees paid in advance, and where there is more than one child at the school. It is also worth investigating what, if any, awards are available at the school of choice.
Scholarships may be available for children gifted in music, art or academic studies, up to a maximum of 50 per cent of the fees.
Bursaries may be available to parents who would otherwise not be able to afford the full cost. Other awards and assisted places schemes may exist, for example, bursaries for parents in the Armed Forces.