With independent school fees often costing more than £4,000 per term, per child, not many families can afford to take these sums out of their disposable income without serious cash flow implications. In this article, we introduce several efficient ways of funding independent school fees that take care of your child’s educational expenses without it impacting your family’s lifestyle.
1) Tax Efficient Investments And Planning
The easiest source is to make full use of your tax efficient savings allowances. ISAs enable you to invest up to £20,000 per year, and all income and growth is tax free. Enterprise Investment Schemes (EIS) are another efficient way of saving for independent school fees.
Introduced in 1994, EISs offer up to thirty percent income tax relief on investments in early stage, high risk businesses. The relief is given by deducting it from the investors tax liability. This means that if you contributed £1 million to fund an eligible start-up enterprise, you would be entitled to tax relief for thirty percent of the shares you bought. This could result in a tax reduction of £300,000 provided you have sufficient Income Tax liability to cover it. Up to the amount that can be invested in one tax year can be carried back to the previous tax year.
Better still, you do not have to pay capital gains tax when you sell your qualifying shares in the early-stage businesses as long as they have been held for 3 years. Instead, under specific terms, you can carry over your capital gains to the tax year of your retirement, or to a tax year when you will be paying a lower rate, making it a good option for older parents or grandparents to fund independent school fees. SEISs (Seed Enterprise Investment Schemes) and VCTs (Venture Capital Trusts) also provide similar perks to investors. However, like EISs, these schemes are only suitable for people who have a sizable amount of capital to risk.
2) House Remortgage
Many parents remortgage their home or another property to pay for independent school fees. This straightforward process gives instant access to large cash lump sums for parents who want to pay for multiple years of education in advance and spreads the cost by including school fees within regular monthly mortgage repayments.
3) Bursaries And Scholarships
Bursaries and scholarships are financial grants provided by individual schools to reduce the fees liability for eligible students. These are either means tested – in order to increase the accessibility of independent education to low-income households – or ability-based, to attract the brightest and most academically gifted children. In a minority of cases these grants cover the full cost of fees, but most parents still have to pay reduced-fees.
While it’s worth exploring what bursaries and scholarships are available for your child, it’s important to remember that only around a third of students in ISC (Independent Schools Council) independent schools currently receive a financial subsidy.
4) Pension Release
If you are older than 55 and have a child in independent education or would like to contribute to your grandchildren’s school fees, you can do this by withdrawing a tax-free lump sum from your independent pension pot. This can be up to 25% of the total value of the fund, before taxes are due on the remainder. Many younger parents fund school fees through a remortgage and then pay this off with a pension release after their 55th birthday.
Find Out More
If you’d like to discuss independent school fees funding sources and planning strategies with one of our experienced experts, please get in touch to arrange an appointment.
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