Balancing the education equation

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School fees are rising faster than the rate of inflation, creating financial challenges for parents who want to educate their children privately. In addition to this, all parents who plan for their children to attend higher education must also factor in financial planning for university or college tuition fees and living costs.

Private school fees rose by 3.7% from 2018 to 2019, according to the latest figures from the Independent Schools Council (ISC). This isn’t a one-off hike. School fees have risen by an average of 3.9% a year since 2010. In Scotland, if the current discussions around removing private schools’ charitable status are approved, and they lose their 80% rebate on business rates, future fee increases could be much higher.

The question for parents is how to fund these rising fees and plan for higher education costs too. Some families may be able to meet the costs out of earnings, but many parents will need to build up reserves. When planning to accumulate a fund for education costs:

Plan ahead

The sooner you start, the better chance you have of building a decent nest egg . Last minute decisions may restrict your choices.

Make the most of tax-breaks

The ISA allowance enables each parent to save up to £20,000 a year, in a fund that is free of UK tax on investment income and capital gains. ISAs can be used to build both cash savings and equity investments.

Look at the range of investment options

If you have a savings horizon of 10 years or more, you might want to consider equity investments. But remember you will have to pay the fees, regardless of stock market fluctuations. To maximise returns and reduce risk, aim for a diversified portfolio of equities and bonds and keep charges to a minimum.

Get the rest of the family involved

Grandparents – and other relatives – might be willing to contribute. Regular payments towards school fees (or a savings fund) might qualify for exempt treatment and reduce their eventual inheritance tax liability. Any one-off lump sum payments would normally be disregarded, providing the donor survives for a further seven years.

Ask about bursaries and scholarships

Financial assistance with fees might be available. The ISC says the number of pupils being helped by these schemes has risen by 3% over the past year.

Remember to factor in insurance

If you were too ill to work, for example, how would you continue paying school fees or fund higher education costs? An income protection insurance policy may help ensure your child has continuity of education.

Factor in other costs

When building a savings fund, factor in future fee increases and don’t forget to include ‘extras’ such as music lessons, school trips, sport activities and travel costs to a potentially far flung university campus.

 

The value of your investments and the income from them can go down as well as up and you may not get back the full amount you invested.

Past performance is not a reliable indicator of future performance.

Investing in shares should be regarded as a long-term investment and should fit in with your overall attitude to risk and financial circumstances.

The FCA does not regulate tax advice.

Levels and bases of taxation and tax reliefs are subject to change and their value depends on individual circumstances. Tax laws can change.

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