Parents always want the best for their children, especially when it comes to education.
Although your children may go to the local school now, you might be thinking about sending them to a fee-paying school at some point in the future. But even if you feel that the local authority can offer a good education up until A levels, there will still be the costs of college or university to think about.
The costs involved can be substantial. It means that your children’s education is probably the second or third most expensive cost in your life – and the old saying “If your children have already been born, you have left it too late to save,” has more than a grain of truth in it. Many parents who want to send their children to a private school find that increasing fees make it difficult.
Fortunately, at Continuum, we know some of the ways to deal with these costs. There’s a wide range of different savings and investment products available, which could be suitable for school fees planning, depending on your circumstances.
How a traditional school fee plan works
School fees plans used to be the solution of choice to help parents save. These are typically structured as an investment providing an endowment with some life cover, with the investment tied up for up to ten years – at which time they aim to provide sufficient cash to cover fees (which tends to make them less suitable for prep school fees). They can be tax-efficient, and usually offer some kind of protection element. They are also flexible, and while they’re intended to provide for school and university fees, the money can be used for other purposes if circumstances change.
There are three main options
- Capital schemes allow you to invest a lump sum in a fund, which may have a guarantee that you’ll at least get back your original investment. The earlier you invest (when your child is born, or even conceived) the more chance you have of making the money you need with the investment.
- Regular savings schemes allow you to make regular monthly or annual payments and again, the earlier you start saving the more money your investment should return.
- Combined schemes, as the name implies, allow you to invest a lump sum at the start of the plan and top it up over the years.
This type of investment could provide the funds you need, but there is no absolute guarantee of how much you’ll get. The value of your investment can go down as well as up and you might get back less than you invested, which means that it might not be enough to cover the fees when the time comes to actually pay them.
School fee plans are designed to be tax efficient, but with many traditional plans, returns will be subject to tax – which can take a large slice of your profits. You also need to be wary of fees. You might have to pay initial fees, annual management charges or even a percentage of your profits with some plans.
Getting Grandparents to help
If your own resources might be stretched, you might be able to get the support of your own parents. Setting up a trust is one way for grandparents to pass on assets tax efficiently, however this would require specialist help. They might also contribute to school fees by making regular gifts out of excess after-tax retirement income under the conditions for inheritance tax exemption, or by giving smaller sums. Gifts under £3,000 per grandparent per year can also be exempt from inheritance tax as per the current tax year. Again, professional help is essential to avoid the pitfalls.
Getting that professional help
At Continuum, we know the positives and the negatives of traditional school fee plans. We also know the alternatives – like ISA investments or gifting from other family members.
We could help you set up the plan you need to let you get your children’s future off to a good start, integrate it into your other financial commitments, and help you pay less overall.
Getting the future you want for your family is easier with some expert help. At Continuum we would be happy to provide it.
The information contained in this article is based on the opinion of Continuum and does not constitute financial advice or a recommendation to suitable investment strategy, you should seek independent financial advice before embarking on any course of action.
The value of investments can fall as well as rise and you may get back less than you invested.
The Financial conduct authority does not regulate university/school fees planning.
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