Being a parent who has been through the education process with my two children who are now in employment, selecting schools can be extremely stressful. The potential high costs and commitment associated with private education, it soon becomes clear that this form of financial planning and decision making will require some serious thought and advice.
As State Schools have upped their game in recent times often outperforming their private school counterparts in the ‘grades achieved’ department, you could not be criticised for thinking is the private education route working and more importantly is it value for money?
The first step that parents must take is to determine whether this likely expenditure is possible for them, given their financial circumstances and employment. Some people have been known to send their children to private schools stretching every sinew of their financial capability in the beginning, only to see ongoing costs rise substantially that they are forced to get into debt to continue the education thus placing huge burdens on the family unit as a whole. A divorce or loss of employment can dramatically disrupt the process, and more often sees the child move to another school as the costs become unsustainable.
The consensus around cost for a child’s private education to age 18 seems to be around £250,000 to £300,000 and possibly more. What if you have 2 or 3 children, and you have to treat all the same regardless of their ability? What if they decide to go to University, and you assist with certain expenditure, it soon becomes a very serious decision to make. A common view often taken is to educate the child privately to senior school age and then determine whether it is of further benefit to carry on as is or to send the child to a state school, given the child’s ability, and thrive thus achieving those higher grades that I mentioned earlier.
If it is deemed possible to provide private education, the planning needs to start very early and continue doing so throughout the child’s education. If Grandparents are intending to leave legacies to the grandchildren, they can start gifting on a regular basis to cover some or all of the fees. Using existing assets such as property income or pensions can also be considered, which may ease any Inheritance Tax issues. With the introduction of the new pension regulations in 2015, which can allow children to be appointed beneficiaries of a pension plan, they could enjoy the flexibility and potential tax efficient benefits associated with a pension to help with the financing of education.
So where do you start and what with? Having an investment that doesn’t penalise you for taking regular or ad-hoc withdrawals is a must; most school fees tend to be paid each term. The investment will at the very least be able to compensate for inflation, and if the investment is to be funded out of parental regular income, it will be after income tax, and will, therefore, need to be accounted for as a slice of the annual salary regularly spent on tuition funding. This may have an impact on other expenditure that may not be possible for the family e.g. annual holiday. If you have 3 children being privately educated to age 18 at a cost of £750,000 that will be after tax meaning that you would need to have earned over £1.25 million to cover just this cost let alone other expenditure such as a mortgage. One thing for sure is that you need to start early, properly fund the investment, stay with it, and get some proper advice at the outset.