school-fee-planning
If you are 55 or over, you are entitled to access your pension funds, even if you’re still working. These funds can be used for any reason, including paying independent school fees for your children or grandchildren. Here’s what you need to know.

How Much Money Can You Release?

There is no limit to how much you can withdraw from your pension fund at a time, so some people use their pension pot to pay school fees in a lump sum, while others withdraw smaller amounts on an ongoing basis. You can withdraw 25% of the value of your pension fund as tax-free cash. The remaining 75% of your pension, will be taxed at your normal rate.

Pensions And Mortgages 

Many people use their private pensions to fund a child’s education. However, as pensions can’t be accessed before a person’s 55th birthday, this comes too late for most parents. Pension funds can, however, be used to fund the later stages of secondary schooling, and be combined with other funding sources to pay primary school and early secondary school fees. Many parents use a remortgage to make their school fees payments and then use their pension tax-free cash to pay off the remortgage when they turn 55. In this way, using a pension’s tax-free cash allowance enables parents to spread the cost of school fees even before they’ve retired, and pension savings can be planned in advance to reflect this.

For grandparents, pensions can be an accessible and tax efficient way of contributing to their grandchildren’s schooling.

Further Considerations

For business owners, paying for school fees through pension contributions offers additional benefits, as employer pension contributions are deemed to be an allowable business expense and therefore, can be deducted from the company’s corporation tax liability. Higher and additional rate taxpayers are able to make contributions to their pension from their gross earnings, before income tax and National Insurance tax are deducted.

Find Out More

Working with an experienced school fees adviser will help make independent education more affordable and enable you to spread costs in a way that suits your family budget. For more information, please give one of our independent advisers a call today.

 

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