Spread the Cost
Lump Sum
Regular Savings
Payment Protection
Trust Planning
Scholarships and Bursaries
Grants
Grant Giving Trusts
School Composition Fees
Monthly Payments
Questions
So what next?

Why do I need school fees planning advice?

Having decided to educate your child/children independently is it important to take appropriate advice to ensure the continuity of their education.

The Parent/Grandparent must be fully aware of the financial implication and be confident they can afford the fees throughout the selected term. If the costs of an independent education are not planned properly, at a later date this could prove serious for both the child and the Parent.

We are able to offer comprehensive financial advice as to the best manner to meet and protect future school fees.

Basically our clients fall into three categories; those looking to spread the cost of fees; those looking to invest a lump sum; and finally those Parents who are wishing to set up a regular savings scheme to provide funds to cover future fees.

The actual advice offered to Parents is dependant on many factors. For example, we would take into consideration Parent’s attitude to investment risk, the current tax rate of the Parents, their existing portfolio of investments and assets as well as other income. Everybody’s financial situation is different, that’s why we provide specific advice to meet your individual needs and requirements.

Over the years we have successfully helped many Parents in handling school fees.

Spread the Cost

Having embarked upon a private education for their children, many Parents experience difficulties in funding school fees continuously from taxed income.

There are a number of schemes available that are designed to help Parents in this situation with payment of school fees. The purpose of these plans is to improve cash flow and hence make school fees more affordable.

In essence, this involves spreading an element of the school fees over a longer period of time. For example, a Parent may be able to afford comfortably 70% of the school fees from income; however the additional amount may prove to be a strain on finances. In this instance, it may be possible to take out an equity draw-down plan to spread the school fees for the balance of 30% over say a 10, 15 or 20 year period.

Features of this plan include:

• Flexible drawdown facility

• Dedicated school fees bank account

• Loan facility either secured against property or unsecured

• Tax efficient offsetting facility to take advantage of personal and Parents savings

• Capital repayments spread over an affordable period

• Your home may be re-possessed if you do not keep up repayments on your mortgage

Lump Sum

Should you be in the position of having a lump sum that you can "earmark" specifically to meet the cost of future school fees, there are a range of plans open to you.

Early investment of capital can at best avoid the need to use income for providing for school fees in later years, or at worst go a significant way towards reducing reliance on income. With all investment options the monies are only "earmarked" for school fees and it is at the investor's discretion how funds are used.

In all instances, we embrace fully the need for tax efficiency and flexibility of approach when tailoring individual arrangements. Portfolios and recommendations are specifically constructed to take into account clients' attitude to investment risk.

Your bespoke school fees plan will take into consideration the following points:

• Offshore investments for non tax-payers or non-UK residents

• Professional management of your capital

• Diversified spread of assets to suit your risk attitude

• Minimising the burden of higher rate tax via tax sheltered investments

• Benefits of composite fees paid directly to the school

• Opportunities for effective use of trusts

Regular Saving

Regular savings for school fees can help pay for future costs and should ideally be started as soon as possible. It is wise to commence school fees planning before your children are born. The longer that you save, the less the impact there will be on income when school fees fall due. There are many plans available that can be tailored to individual needs and requirements. This leaves individuals with flexibility to use funds at their discretion.

Options include the following plans:

• Monthly savings into a tax efficient offset mortgage account

• Tax-free savings into ISAs

• Dove-tailing of existing plans into your school fees schedule

• Separate planning to cover the increase in fees from year nine

• Specific planning to fund University fees

• Advice on existing endowment plans for mortgage repayment

Payment Protection

It is important to ensure that the payment of your children's school fees can be continued in the event of a change in your personal circumstances due to serious illness, injury or death.

The following are common options relating to insurance:

• A lump sum can be provided by life insurance which if written into a flexible trust will provide immediate continuity of school fees

• Diagnosis of critical illness such as heart attack or cancer could seriously affect your ability to maintain your current earning capability. A lump sum payment would relieve the pressure of school fees

• Income protection plans guarantee your income through to retirement in the event of illness or accident

• Monthly benefit plans designed to meet the rising cost of school fees are also available

• All protection products should be written in trust to ensure payments are made promptly to the school and the benefit is not subject to inheritance tax

Trust Planning

Trust planning can be useful for Grandparents who wish to make provisions for school fees and achieve Inheritance Tax benefits at the same time. Trusts offer the benefit of transferring the tax liability on future income and capital gains to the children to utilise their personal annual allowances. Chargeable gains on life policies may also be re-assigned which could avoid a higher rate tax charge. It is important to take advice on the correct trust arrangements for the investments held.

It is also possible in some circumstances to transfer an existing capital gain to the trust avoiding the need to settle the tax bill on transfer. The capital gain will later be assessed against the beneficiaries or the trustees, however indexation relief will be lost.

Advice to Parents will need to take account of the Parental settlement rules governing the taxation of gifts to children.

There are basically two types of trust, one in which the children have a right to any income arising from the trust and also own the capital, the other where the distribution of capital and income is at the discretion of the trustees. Accumulation &

Maintenance Trusts offer both of the above.

Parental settlement rules assess the income arising from trust assets as the Parent’s income, which makes it more difficult to benefit from trust planning. However there is the opportunity to gain immediate benefit through making payment directly to the school. “Composite fees” qualify as a disposition for the benefit of a family member and as such the capital is immediately removed from the estate with a potential IHT saving. There are however drawbacks in terms of future potential growth, so advice should be sought in this area.

Trust planning is not suitable in every situation, if you would like advice in this area

Contact us.

Scholarships and Bursaries

Over 30% of children receive some help with their school fees; many of those receive scholarships or bursaries from the schools themselves. Scholarships, or ‘exhibitions', are offered by schools to children, who qualify by competitive examination and are often based on academic, musical or artistic merit. Other scholarships may be offered for sport, design and technology, drama or all around achievement. Most scholarships are offered by senior schools, but many preparatory schools also have scholarships, although awards for under-7s are rare. Scholarships rarely cover more than 50% of fees and values vary greatly. Many schools augment scholarships with bursaries based on parental means. Information about schools offering scholarships can be found on in more detail from individual schools. Financial help from a school, not based on a competitive exam is known as a ‘bursary'. Some schools award bursaries to certain categories of parent e.g. clergy, the armed forces and teachers. Bursaries are sometimes offered to children of former pupils.

Grants

The Ministry of Defence, the Foreign & Commonwealth Office and other government departments sometimes give grants to enable children whose parents are working abroad to attend boarding schools in the UK. Under the government's music and ballet schemes, pupils may qualify for grants at a specialist music or ballet school Local authority grants are available occasionally for children whom the local authority cannot provide an appropriate education. Finally, multinational companies and some professional associations sometimes provide educational funding.

Grant Giving Trusts

Charitable grant-making trusts can sometimes help, but only in cases of genuine need. Examples include:

a) The need to board where the home environment is unsuitable due to, for example, the disability or illness of alone parent or of siblings.

b) Unforeseen family disaster, such as death of a parent, when the child is already at a school.

c) The need for continuity when a pupil is in the middle of an examination course and a change in parental circumstance may cause withdrawal from the school.

d) Special education need where there is a recognised learning handicap, not being catered for within the state sector and which is causing the child severe distress coupled with social problems. Only the most severe cases can be helped by the Grant Giving Trusts as they maintain that special educational needs are the responsibility of the local educational authority.

School Composition Fees

Many independent schools have a facility for paying the whole of a child's fees in advance direct to the school. The amount required will vary depending on the school chosen, the number of terms required and the date of the advance payment. This facility is known as Composition Fees. A capital sum to cover all or even part of the fees made at the time of entry to the school will usually attract a discount on the fees payable. Inheritance tax is not usually payable on payments made by parents into composition schemes and although payments made by others are potentially liable, there are exemptions, which could be of interest to grandparents and guardians. Talking to an adviser will help here.

Monthly payments

Many schools now give parents the option of paying fees monthly. Some schools run their own facility. A qualified adviser will be able to help with information on this option and other ways of making fee payments on a monthly rather than termly basis.

Questions

Q Are there any tax concessions available with school fees payments?

A Unfortunately previous covenant schemes have all been abolished therefore we need to consider all remaining opportunities such as:

• Children’s annual income and capital gains tax allowances

• Annual tax-free investment allowances

• Tax-free returns available through offsetting against a personal mortgage

• Trust planning

• Opportunities available through offshore investments

• Options to re-assign life policies and investment bonds

Q How can I spread the cost of my payments?

A It may be possible to set up an efficient draw down of capital secured against your property to spread the cost of school fees over a longer year period. You only pay interest on the money that is gradually withdrawn. Your home may be re-possessed if you do not keep up repayments on your mortgage

Q How can I best protect the payment of future school fees?

A It is possible to apply for an insurance plan that will pay a monthly tax-free benefit in the event of death or diagnosis of a critical illness. The cost of this cover will depend on the level of the benefit, your age and state of health.

Q My savings plans have not performed as well as I had expected them to, how can I cover the shortfall?

A This is where personal financial advice is particularly important; you should have benefited from regular personal reviews of the school fees plan & related investments, which Templegate provides to all its school fees clients. The answer to a shortfall will depend on your personal circumstances.

So what next?

A good adviser can really save you money in the long run. Talk to an adviser