Estimates of the likely bill for a university education vary widely, since the future funding of higher education is in the melting pot - but as an indication, the National Union of Students calculates that it costs a student pounds 5,410 a year to live in a London hall of residence, and a figure of pounds 6,000 would be realistic to cover the cost of books, meals and travel. Tuition fees, if they are introduced, would be several thousand more.
The challenge, then, for parents, is to find ways of covering such costs without breaking the bank. One unconventional but highly tax-efficient means of providing for such sums is to invest offshore.
This does not involve numbered accounts in secretive Swiss banks, or laundering money through tiny islands in the Caribbean. The reality is much more prosaic, and involves investment funds based in such decidedly un-exotic locations as Luxembourg and Dublin.
Although unregulated by the UK authorities, so long as the investment is in an offshore subsidiary of one of the well-known fund management groups or life assurance companies, there will be little more risk to capital than with most other kinds of investment in managed funds.
Some offshore funds in fact put their money back into the UK. Edinburgh- based Murray Johnstone, for example, operates a fund which buys bonds and fixed-interest stock issued by banks with triple-A credit ratings - among the safest investments available.
Investing offshore in this way, a sizeable fund can be created for the payment of school fees or higher education costs.
While the charges are slightly higher than their mainland equivalents, because of their tax-free status the performance should more than compensate for this.
Offshore management groups invest free of UK income and capital gains tax. This means that they can invest tax free with the gains and income being reinvested to make the fund grow faster.
Individuals who invest offshore usually do so in roll-up funds, so called because the earnings are rolled up year after year, and drawn only when the investment is cashed.
The investors only become liable to income tax on the gains at the time of encashment - and even then, there are ways in which the tax liability can be minimised.
There are a couple of main methods of investing money offshore to pay for education, which apply equally to school fees or higher education costs.
If you are planning to pay fees some years ahead, the most straightforward means is investment in one of the many offshore funds now on offer. The investor faces a vast choice, everything from UK equities to Latin American specialists and currency funds.
A number of the leading management groups offer umbrella funds where investors face just one set of charges. They then have a choice of sub- funds to invest in, between which they can usually switch freely.
A typical example is Guinness Flight's International Accumulation Fund, launched in 1980, that has 14 sub-funds including a range of currency and bond funds as well as international and European equity funds.
The investment can then be cashed in as needed. Investors should note that they will be liable to income tax on any gains and will not benefit from the UK indexation rules on them. But if the encashment is on a phased basis to pay for school fees, the tax liability can be minimised.
Use of offshore funds can be particularly useful in providing money for children going to university. A parent or grandparent can set up a trust offshore in a child's name which will pay an allowance after their 18 birthday.
As the student is unlikely to have any other income, and taking advantage of the tax allowances, a significant proportion of the money can be received virtually tax-free.
Another method of using offshore investments is for low-rate taxpayers who need to pay school fees immediately and have a significant lump sum. They can buy an offshore annuity which will pay the costs of schooling and other expenses each term.
As annuity rates are continually fluctuating, an independent adviser with a knowledge of offshore annuities will be able to advise on how much is needed to purchase such an annuity.Reuse content