As students across the UK receive their GCSE or A-Level exam results over the coming days, Lisa Lloyd, wealth planner at Sanlam UK, looks at five ways parents can plan financially for private school fees.
Private education on the increase
According to a census conducted by the Independent Schools Council (ISC), well over half a million pupils attend ISC member schools - more than ever before. This is despite private school fees rising by 3.4 percent last year – more than the rate of inflation. With an average term of fees now costing £5,700, educating a child privately through senior school will cost around £85,500 (assuming five years at today’s average fees).
If current education inflation of 3.4 percent persists, the average cost of private education will be nearly £26,500 per year, per child, by the time a new-born today reaches their 13th birthday. The total cost for five years of senior school will be over £141,000 per child. That means you need to start putting aside more than £11,000 per year from birth to cover these fees (albeit assuming no growth), and the later you leave it, the more you will have to save, Ms Lloyd states.
Saving for fees
If you can accept the extra risk it’s also advisable to invest savings, rather than holding them in cash. A stocks and shares ISA is a great place to start as you can invest up to £20,000 per tax year (2018/19), and any returns you make are completely tax-free. If, for example, you start saving £7,500 per year from the day your child is born, and assuming you achieve an annual return of five percent on your investment, you will have saved nearly £140,000 by their 13th birthday. If you can save the maximum amount of £20,000 a year, you will have saved over £370,000 by the time they reach senior school.
Depending on how old you are, another way of saving for fees is to consider using your pension savings. Not only is it the most tax-efficient way to save, you can access your money when you’re 55 years old, and you’re entitled to take the first 25 percent of those savings tax free, Ms Lloyd reveals.
Gifting from grandparents
Additionally, you don’t necessarily need to find all the savings yourself. There are different ways that grandparents can help. They are entitled to gift up to £3,000 each year, inheritance tax (IHT) free, which could then be placed into your stocks and shares ISA. Grandparents can also use a trust to gift money, which gives them the control over how the money is spent and can also potentially lessen their IHT liability. However, this is a complex solution and professional advice is essential.
Finally, a financial planner can help you achieve your longer-term savings goals. The sooner you start putting plans in place to fund such expenses, the better, as these costs could escalate further over the next few years.
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