Fees have increased by an average 5.6% this year, compared with a 4.1% increase in 2020 and only 1.1% in 2021, according to a 2023 census of the Independent School Council's (ISC) 1,395 member schools.
The cost of a day school is now an average £16,656 a year, which is 5.8% more than last year. The average annual boarding fee is now £39,000, 5.2% higher than in 2022 and 41% higher than the average of £27,600 in 2013.
It’s been said that “If your children have already been born, you have left it too late to save”. For those seeking to educate their children privately, the fees have risen faster than the rise in average earnings.
Many parents want to send their child to a private school but increasing fees mean even those on higher salaries may struggle to afford it. So, what can parents and grandparents do to support school fees?
Plan ahead
After a mortgage, school fees can be your largest expense. Even with rising interest rates, cash isn’t the best way to save for fees and higher risk investment opportunities should be considered. If you have 5-10 years before needing to start paying for education, then it’s worth considering a well-diversified investment portfolio, actively managed by a discretionary fund manager based on your objectives.
Aim for tax efficiency
Parents should use their Individual Savings Account allowance, which lets each parent invest up to £20,000 this tax year. Your money grows in a tax-free environment and can be withdrawn to meet school fees without worrying about tax.
You should also consider a Junior ISA which will work if you start thinking early about university fees. This tax-efficient product allows parents, grandparents, and family friends to invest in cash or shares on behalf of children. The money saved can only be withdrawn when the child reaches adulthood. It has an annual maximum investment of £9,000 per year.
Help from grandparents
Family members may be willing to boost regular savings for school fees or contribute to a starting pot. Grandparents can utilise this to reduce the value of their estate for inheritance tax purposes. Regular gifts from income can be made free of inheritance tax, or lump sums, if the donor survives seven years after making the gift. They could use their annual gift exemption of £3,000. Setting up a bare trust is another way grandparents can help. These are created when a gift is made into a designated investment account with the intention of creating a trust. The child is the beneficiary and there are usually two adult trustees. A gift to a bare trust will be exempt from IHT if the donor survives seven years. The grandparents can continue to contribute their annual IHT exemption [£3,000 per donor] and make gifts out of surplus income without any further IHT exposure. The advantage of a bare trust created by grandparents is that any income or gains will be taxed in the grandchild’s hands rather than the grandparents.
If you are looking for support managing your school fees investments, please contact us.
The value of an investment and the income from it can fall as well as rise, and investors may not receive back the amount they invest. Past performance is not a guide to the future.