How can Grandparents fund school fees in a tax-efficient way?
School fees can be very expensive for those looking at private education but with the right tax planning, there are significant tax savings that can be made.
In this video, Lucy Crow from MHA Henderson Loggie looks at the potential tax savings for parents and grandparents with a family business.
Covered in this video:
✅ Costs of private school
✅ School fees example
✅ Potential tax saving
✅ Other options for school fee planning
📌 If you have any questions, please contact Lucy directly at firstname.lastname@example.org
*Edited video transcript*
The cost of private school
The cost of private school can vary between different schools. On average for a day school pupil, it can range from £7,000 per year, per child, up to £20,000 and for those boarding, it’s more expensive starting from around £15,000 up to sometimes over £40,000 per year per child.
School fees example
If we take an average day school pupil of fees of £10,000 per year, over a 13-year education for the child, that would be over £130,000. If you’ve got three children, that’s £390,000. To pay fees of £10,000 per year, for a top rate taxpayer can mean extracting over £16,000 from the family business to leave them with the £10,000 after tax to pay the school fees.
Potential tax saving
In this planning, we use a trust together with the family business, to utilise the children’s personal allowances to allow you to take £10,000 from the business with no tax, thus leaving £10,000 to go straight to fund the school fees. This gives a tax saving of potentially over six thousand pounds per year. Over a 13-year school career, this is a tax saving of over £80,000 per child and therefore if you’ve got three children, that would be a saving of over £240,000.
In this video, we’ve used £10,000 as an example of the school fees. If the fees are higher than that, the tax savings would also be higher. The other important thing to notice that this isn’t just available for school fees planning. This planning can also be used to help fund further education costs such as universities.
Can anyone do this?
This particular planning is for those with a family business but can be utilised by parents, grandparents, or even wider family members that wish to assist with school fees planning.
Is this the only option for school fees planning?
We focused here on the tax savings that can be achieved for school fees planning with the family business, but there are a number of other options available. One, in particular, that is very popular, is gifts out of surplus income. Check out our video on this topic: How can I use gifting to reduce my Inheritance tax?
This was a brief summary of some of the significant tax savings that can be achieved with the right tax planning for school and university fees. If you have any questions or would like some advice, please contact Lucy at email@example.com.