How to make school sums add up

Huge rises in fees means an independent education, needs even more planning than previously. Chiara Cavaglieri reports

If you dream of a private education for your offspring, as they settle back into school, time and strategic approach to saving and investment is vital.

At the top end, independent schools can cost more than £30,000 a year but across the board prices have risen nearly twice as fast as inflation in the past decade. The average annual private school fee is up from £6,820 in 2002 to £11,457 in 2012, according to new figures from Lloyds TSB Private Banking.

The economic downturn has had a huge impact, with the average fee growing by 19 per cent in the past five years. Parents in the South-west and London have faced the biggest increases with fees rising by 79 per cent in the past ten years. Overall, fees are highest in the south, costing on average £13,359 in London and £12,879 in the South-east, almost a third lower than the north (£9,171) and Scotland (£9,816).

These figures may seem insurmountable, but with time on your side, there are a number of vehicles designed to help you build up a decent sum. Junior ISAs (individual savings accounts) are great for university education, but will be of little use for private school fees as there is no access until age 18.

Instead, make the most of your own, more generous ISA allowance, as a straightforward, tax-efficient place to start saving. First, you'll need to decide whether you want a cash, or a stocks and shares ISA; in the current tax year you can save £11,280 overall, with no more than £5,640 in cash and the rest in an equity ISA.

Most advisers pick stocks and shares for investors with a long timeframe, over which the ups and downs of the stock market will smooth out. And, with the appropriate nod to the level of risk involved, investing over the long term could be the ideal opportunity to go for equities, which have historically significantly outperformed fixed-income vehicles.

Equities could allow you benefit from superior growth potential in the long term, making the most of high-risk, high-reward sectors such as emerging markets. Then, as your child approaches adulthood, you can gradually reduce the risk, perhaps by moving into bond funds and cash to lock in any gains you've made.

"Savings can be kept in an ISA to maximise tax-efficiency, possibly with some of it invested in equities, if it is earmarked for fees five to 10 years down the line," says Jason Witcombe of independent financial adviser Evolve Financial Planning.

Mr Witcombe encourages clients to look at school fees as just another expense, albeit a big one, and to be realistic about how these fees will rise over time. "I'm not a big fan of investment products that are marketed as school fees schemes as I really don't believe that there is a one-size-fits-all solution to funding for education costs," he says.

Often, it is grandparents who help fund their grandchildren's education which also has the advantage of reducing inheritance tax (IHT) liabilities.

You can give up to £3,000 away a year as well as make "regular gifts out of surplus income" outside of your estate. "Other gifts are 'potentially exempt transfers' which means you must survive seven years for them to be free of IHT," says Jason Hollands of IFA Bestinvest. "Ultimately, those grandparents likely to be liable to IHT should ask themselves who would they sooner their money be left to, their grandkids or the Chancellor?"

Parents and grandparents can also use trusts to earmark assets and make use of IHT allowances. The cheapest and most common trust for school fees is known as a bare trust, which can be set up by anyone for a specific child or children with trustees withdrawing money as necessary. Those setting up a trust will not incur an immediate tax bill (unless it is above the nil-rate band, currently £325,000) and, as long as they live for seven years, the gift normally falls outside of their estate for tax purposes.

"Unit trusts under a bare trust arrangement normally pass to the child at age 18, however access can be taken earlier for the child's benefit, and school fees falls within this category," says Danny Cox from IFA Hargreaves Lansdown. There are administration costs to consider, however, which vary widely depending on the complexity of the trust.

Educational trusts are another option, particularly where there are several siblings. These tend to be discretionary trusts which allow more flexibility and control over how, when and to whom benefits are paid, with the certainty that these funds will be issued for the purpose described. "Generally, upwards of £50,000 is required for them to be cost effective. The underlying investments are usually shares or funds," says Mr Cox.

When picking a school it is worth investigating bursaries and scholarshis. If your child has an academic, sporting, artistic, or musical talent, a scholarship may reduce the fees by anything from 5 to 50 per cent.

"The big change in scholarships in recent years has been schools moving to means testing of awards. This is great if you're the poor parent of an Einstein or Jessica Ennis. Not so good if your income is more on the average side or just above," says Janette Wallis from The Good Schools Guide (goodschoolsguide.co.uk).

However, she says you can still hunt down scholarships available for niche sports, while some schools also offer occupational discounts to members of the Armed Forces, the Foreign Office and the clergy. And one school, Charterhouse, even offers a scholarship for "sons of lawyers". thanks to a generous descendant of Sir William Blackstone.

Independent Partners; request a free guide on NISAs from Hargreaves Lansdown

PROMOTED VIDEO
Arts and Entertainment
a clockwork orange, stanley kubrick
film
Extras
The Tesco Hudl2: An exceptional Android tablet that's powerful, well-built and outstanding value
indybest

News
Sarah Silverman (middle) with sister Reform Rabbi Susan Silverman (right) and sister actress Laura Silverman (left) at Jerusalem's Western Wall for feminist Hanuka candle-lighting ceremony
peopleControversial comedian stages pro-equality Hanukkah lighting during a protest at Jerusalem's Wailing Wall
Sport
After another poor series in Sri Lanka, Alastair Cook claimed all players go through a lean period
cricket
Arts and Entertainment
The Bach Choir has been crowned the inaugural winner of Sky Arts’ show The Great Culture Quiz
arts + ents140-year-old choir declared winner of Sky Arts' 'The Great Culture Quiz'
Life and Style
food + drinkAuthor DBC Pierre presents his guide to the morning after
Life and Style
food + drink
Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Carlton Senior Appointments: Private Banking Manager - Intl Bank - Los Angeles

    $200 - $350 per annum: Carlton Senior Appointments: Managing Producer – Office...

    Carlton Senior Appointments: San Fran - Investment Advisor – Ind Advisory Firm

    $125 - $225 per annum: Carlton Senior Appointments: San Fran - Investment Advi...

    Sheridan Maine: Commercial Finance Manager

    Up to £70,000 per annum + benefits: Sheridan Maine: Are you a qualified accoun...

    Sheridan Maine: Regulatory Reporting Accountant

    Up to £65,000 per annum + benefits: Sheridan Maine: Are you a qualified accoun...

    Day In a Page

    Homeless Veterans appeal: 'You look for someone who's an inspiration and try to be like them'

    Homeless Veterans appeal

    In 2010, Sgt Gary Jamieson stepped on an IED in Afghanistan and lost his legs and an arm. He reveals what, and who, helped him to make a remarkable recovery
    Could cannabis oil reverse the effects of cancer?

    Could cannabis oil reverse effects of cancer?

    As a film following six patients receiving the controversial treatment is released, Kate Hilpern uncovers a very slippery issue
    The Interview movie review: You can't see Seth Rogen and James Franco's Kim Jong Un assassination film, but you can read about it here

    The Interview movie review

    You can't see Seth Rogen and James Franco's Kim Jong Un assassination film, but you can read about it here
    Serial mania has propelled podcasts into the cultural mainstream

    How podcasts became mainstream

    People have consumed gripping armchair investigation Serial with a relish typically reserved for box-set binges
    Jesus Christ has become an unlikely pin-up for hipster marketing companies

    Jesus Christ has become an unlikely pin-up

    Kevin Lee Light, aka "Jesus", is the newest client of creative agency Mother while rival agency Anomaly has launched Sexy Jesus, depicting the Messiah in a series of Athena-style poses
    Rosetta space mission voted most important scientific breakthrough of 2014

    A memorable year for science – if not for mice

    The most important scientific breakthroughs of 2014
    Christmas cocktails to make you merry: From eggnog to Brown Betty and Rum Bumpo

    Christmas cocktails to make you merry

    Mulled wine is an essential seasonal treat. But now drinkers are rediscovering other traditional festive tipples. Angela Clutton raises a glass to Christmas cocktails
    5 best activity trackers

    Fitness technology: 5 best activity trackers

    Up the ante in your regimen and change the habits of a lifetime with this wearable tech
    Paul Scholes column: It's a little-known fact, but I have played one of the seven dwarves

    Paul Scholes column

    It's a little-known fact, but I have played one of the seven dwarves
    Fifa's travelling circus once again steals limelight from real stars

    Fifa's travelling circus once again steals limelight from real stars

    Club World Cup kicked into the long grass by the continued farce surrounding Blatter, Garcia, Russia and Qatar
    Frank Warren column: 2014 – boxing is back and winning new fans

    Frank Warren: Boxing is back and winning new fans

    2014 proves it's now one of sport's biggest hitters again
    Jeb Bush vs Hillary Clinton: The power dynamics of the two first families

    Jeb Bush vs Hillary Clinton

    Karen Tumulty explores the power dynamics of the two first families
    Stockholm is rivalling Silicon Valley with a hotbed of technology start-ups

    Stockholm is rivalling Silicon Valley

    The Swedish capital is home to two of the most popular video games in the world, as well as thousands of technology start-ups worth hundreds of millions of pounds – and it's all happened since 2009
    Did Japanese workers really get their symbols mixed up and display Santa on a crucifix?

    Crucified Santa: Urban myth refuses to die

    The story goes that Japanese store workers created a life-size effigy of a smiling "Father Kurisumasu" attached to a facsimile of Our Lord's final instrument of torture
    Jennifer Saunders and Kate Moss join David Walliams on set for TV adaptation of The Boy in the Dress

    The Boy in the Dress: On set with the stars

    Walliams' story about a boy who goes to school in a dress will be shown this Christmas