Tax planning

A couple with two children were planning their school fees for education that was due to start in five years’ time. The projected total school fees (including university) was a daunting £460,000.

The husband was the sole income provider with an income of £55,000 per annum with other benefits. Their house was worth approximately £325,000 with a small outstanding mortgage of £50,000.

After discussion, it was agreed that the financial goals were to make school fees more manageable and tax-efficient.

The plan recommended used the house’s equity to fund school fees.

In this particular case, rather than a draw down mortgage, a single sum would be acquired for investment. As other investments were in place, a sum of £100,000 would be required.

There was also £15,000 worth of loans outstanding which could be paid off by increasing the mortgage further, which would free up disposable income to direct at school fees if necessary.

A cash deposit fund of £20,000 would be kept by for early years, while a full quota of ISA investments would be deployed and the balance invested in unit trusts.

As the risk profile was on the conservative side, a low-to-balanced risk mixed asset fund was selected. Similarly, some guaranteed return funds were selected for unit trusts. The husband already had a number of pension schemes. An additional personal pension was recommended to create a total cash lump sum large enough to pay off any outstanding mortgage in 25 years’ time.

Contributions made to the pension fund would be supplemented by an additional 67% of tax paid as the husband was a higher rate tax payer.

A modest additional monthly payment of £350 would enable the pension pot to release a predicted value of over £600,000.

Three different tax-saving mechanisms made this plan extremely efficient and the school fees manageable.