How to plan for the cost of school or university fees

Paying for your child’s private school or university fees is a costly undertaking and one that is a years long commitment.

Fees for private school range from under £10,000 a year to more than £30,000, but on average run at about £15,200 a year, according to the Independent Schools Council (ISC).

And as for university, annual fees in England and Wales are currently capped at £9,250 a year.

So as a parent (or grandparent) looking to fund a child’s education – over the course of secondary and tertiary education – you could be looking at over £100,000 in costs (at today’s rates – which are likely to rise in future).

How to pay for education fees

The truth here is that there’s no silver bullet to finding a way to pay for education fees – be they private school or university.

However, there are a number of things you can consider to make it possible.

First and foremost, if you want to save up a pot of money to pay, then the earlier you begin to do this the better.

Avoid opting for a product such as a junior ISA – if you want to pay school fees – as while this comes with valuable extra tax-free allowance you cannot take money out until the child turns 18 (and at that point the money becomes theirs to control).

That being said, a junior ISA can be an excellent vehicle if the plan is to save for university fees, as long as you’re sure you can trust your child in the future to use the money for its intended purpose and assuming your child is not 17 years old when they start university, which can be the case for children entering university from the Scottish school system.

Using your own stocks and shares ISA as a starting point for school fees is an excellent way to promote growth of that savings pot, while ensuring it remains tax efficient.

But it is important also to consider how this will affect your own long-term financial health, and whether the investments you allocate the cash to is appropriate for the risk and time horizon you need. A financial planner can help you make a plan for this.

Grandparental assistance

For any grandparents considering contributing toward education fees there are some added considerations, particularly around inheritance tax (IHT) rules and retirement planning.

There is a variety of ways to work within the IHT rules in order to be able to help with the cost of tuition fees. Perhaps most salient of those, depending on your age, is the seven-year rule. Most gifts of any size are not liable for the tax if you live seven years after they were made.

Another potentially useful rule comes with gifts made out of your regular income. These can reasonably be excluded from IHT, assuming it has no material effect on your wealth or ability to meet your day-to-day costs. If you own your home and have generally low costs, any surplus earnings that you might be able to set aside for this purpose can be a great pool to draw upon.

It is important, finally, to mention that these rules are complicated and getting them wrong can be the trigger of issues for your retirement savings and any potential tax implications. For that reason, it is prudent to consider seeking financial advice through the process, to ensure the best outcome possible, and to avoid any unintended consequences, for you and your loved ones.