Educating your children is expensive – even at a state school. There are uniforms to buy, lunches to pay for, school trips and much more. If you send your child to an independent school then you’ll have school fees to add to all this, and then comes higher education with the double whammy of tuition fees and living expenses.

The good news is that all these costs are predictable, since you know that a baby born today will be starting secondary school in about 11 years’ time. You therefore have at least a decade in which to build up an education fund.

How much do private school fees cost?

According to the Financial Times, the average fee for independent schools is currently £15,191 per child per year, increasing to £36,000 for children who board. And this is likely to rise significantly.

School fees tend to increase at a higher rate than inflation, so it may get more difficult to send your children to private school. Finding ways to bring down the cost is crucial for many families.

When should you start planning for private school fees?

You may need to save a significant amount, so it’s important to put money in the pot early. It’s also worthwhile having a savings goal in mind. Do you want them to go to prep school, an independent secondary school or a private sixth form? And will you need them to board if your preferred school is far away? Have you included the cost of trips?

Once you know the private school fee costs, not only can you get a savings strategy in place, but you can think sensibly about whether you can afford it. Although your child’s education might be your priority now, you don’t want to sacrifice your retirement savings and ability to make ends meet.

Are private school fees tax deductible?

You can’t use school fees to offset your tax bill. But there are other ways to pay and save for private school more tax efficiently. One popular route is going through the grandparents, who may be happy to help or use their grandchild’s inheritance in this way.

One big plus side is that grandparents can gift money to grandchildren without incurring a tax charge, but it’s not the same for parents. Unless exempt, any gifts from grandparents would be potentially exempt transfers (PETs) with an IHT implication on death within 7 years. There are two key ways to make sure the payments they gift are tax-free:

• Set up a bare/absolute trust – when the grandchildren are named as the beneficiaries, any money the trust earns will be owned by the children, meaning you can use the children’s tax allowance. The assets set aside by the settlor will always go directly to the intended beneficiary. Bare trusts are often used to pass assets to young people – the trustees look after them until the beneficiary is old enough.
• Set up a family business – if possible, your parents could put assets, such as property, or an existing business and under your children’s names as shareholders. They could pay the school fees as dividends to the children, again using their tax allowance. Legal and tax guidance is recommended.

Both scenarios can be effective, but they are complicated to set up. We’re not saying don’t do it – we’re saying to get advice before you go down this route.

Can you use investments to pay for private school fees?

Absolutely. Unless you have a very high income – and one increasing at the same pace as that of private school fees, it is unlikely that you’ll have enough spare cash to pay for the fees unless you’ve made some investments.

Here are two common routes to explore:

• Bonds – an onshore investment bond offers a simple and straightforward, tax-efficient investment solution for those looking to invest a lump sum for school fees planning.
• Stocks and shares ISA – any profits generated in an ISA are tax-free. With a stocks and shares ISA, you can invest the money saved in a bid to make significant gains and enjoy them tax-free.

How can I save for my children’s education?

You have around 11 years to save for your child’s secondary education, and 18 years to save for their higher education. Since those are fixed, medium-long term targets, you can build a financial plan for them with the help of a financial adviser.

You may want to consider a higher risk form of saving, such as a stocks & shares ISA. This can deliver more growth over time than cash savings. With longer-term goals (such as a university fund) you may want to take an even higher level of risk. To give one example, just £100 a month at 4 per cent interest over 18 years could generate a fund of over £30,000.

As your goal approaches (e.g. around two years before you need the money) you should start moving the money into safer assets such as cash. Your adviser can help you create an investment portfolio designed to deliver over these timescales.

What are the main expenses of education?

The costs of primary education include school uniforms, lunches, trips, clubs, extra-curricular hobbies, sports and perhaps private tuition. For secondary school all the same costs apply, though many are usually more expensive (e.g. lunches, trips and sports).

If you want to send your child to a private school, the average cost is now £17,000 a year. Covering this from income alone will be a stretch even if you’re very well-off, so it can really help to have a substantial fund of investments ready to draw upon as needed.

If your child goes on to higher education, then the costs can really soar. Average tuition fees in England are now around £9,200 per year, while living costs (if your child doesn’t live at home) may be between £9,000 and £12,000 per year – making an annual cost totalling over £20,000 a year.

University fees may be largely covered by a student loan, though of course that must be paid off eventually.

Where Grosvenor Wealth Management can help

There are many considerations to consider when it comes to intergenerational planning and each plan must be uniquely tailored to your family’s needs and financial goals. It is, therefore, important to speak to a specialist financial planner to get independent advice on what strategies will work best for you and your family.

Speak to our team of financial planners to get independent advice on what strategies will work best for you and your family.

PLEASE NOTE: Grosvenor Wealth Management Ltd is authorised and regulated by the Financial Conduct Authority. The Financial Conduct Authority do not regulate tax planning or cash flow planning. The value of investment can go down as well as up and you may not get back the original amount you invested. Tax treatment is dependent on individual circumstances and may be subject to change.