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School Fees Tax

We often get asked whether school fees are subject to tax relief, unfortunately the answer is no, however our specialised knowledge allows us to find ways of reclaiming the tax you pay elsewhere to use to pay your school fees. Paying for a private education can be very costly. At SFIA we can help parents reduce school fees through bespoke financial planning and tax-efficient strategies. Our approach is to effectively allow you to pay school fees from your untaxed income.

There are traditional ways to fund school fees such as making investments and regular savings, and there are also more innovative strategies that can be applied, such as using the business, or reducing the grandparents' inheritance-tax bill as part of your savings plan.

Paying for school fees out of after-tax income significantly increases the overall costs especially when taking fees inflation into account. For example, if you take fairly typical girls' preparatory school fees of £2,400 a term and assume inflation of 6 per cent per annum, then the total cost over 16 years of sending one girl to prep and senior school, followed by university, is almost £300,000. An annual £15,000 education fees bill actually costs you £25,000 if you are a 40% taxpayer.

Initially, paying out of taxed income may be manageable, but the mounting future investment in private education will require parents to embrace comprehensive financial and investment planning to meet their objectives. Our advice is to be as tax efficient as possible, you may be able to use tax savings from the Inland Revenue to fund your school fees. This may involve taking out loans, having to make decisions about using surplus equity in the family home or perhaps utilising funds from of grandparents and other relatives.

Tax relief is not available on school fees directly, unfortunately previous covenant schemes have all been abolished but there are many opportunities to reclaim and minimise tax such as:

• Children’s annual income and capital gains tax allowances
• Annual tax-free investment allowances
• Pensions
• Investing in HMRC approved schemes
• Trust planning
• Options to re-assign life policies and investment bonds
• Tax-free returns available through offsetting against a personal mortgage
• Opportunities available through offshore investments

SFIA have proven strategies to reduce or recover income, capital gains and inheritance tax, the proceeds of which can be put into your school fees plan.

Providing you earn sufficient higher rate tax, we are able to fully recover £10,000 of tax paid year on year (up to 3 years prior) or save £10,000 of tax paid this year to invest in an HMRC approved scheme that will return your investment and interest within 6 years.

For higher earners there are investment plans that would be even more beneficial. Contact us for further information.