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How to... Afford your children's school fees

The key to funding private education without breaking the bank is saving in advance, by Phil Mileham.

Research shows that putting two children through private education and university can cost £600,000 (Photograph: Alamy)
Research shows that putting two children through private education and university can cost £600,000 (Photograph: Alamy)

GPs educating or planning to educate children in the private sector may be concerned about covering the cost of school fees.


The Independent Schools Council Census highlighted an average 4 per cent increase in fees this year, while Wesleyan's research shows that educating two children privately, followed by three years at university, can cost around £600,000.

With some experts predicting an era of austerity, some GPs may even have to remove children from fee-paying schools.

However, there is plenty that GPs can do to make the huge financial outlay more manageable. The key to success is to start planning early.

Planning ahead
Factors for GPs to consider before beginning school fee planning include:

  • Exploring whether there are any bursaries, grants or scholarships available to assist in funding your child's education. More details should be available from the school or the local education authority.
  • If you already have assets and investments, review them to see if they will cover the costs. You may want to make additional contributions or seek new investment opportunities. If you invest in new schemes, make sure they will release funding when you need it.
  • Using the options below for longer term savings should make meeting the bills less of a strain than paying out of your regular, taxed income.

Individual savings accounts (ISAs)
Putting money into an ISA can be a smart option as your savings will grow free of income and capital gains tax (CGT). The current annual allowance is £10,200, of which up to £5,100 can be in a cash ISA - best used for money required in five years or less. The remainder of your allowance (or all of it) can go into a stocks and shares ISA, designed for medium to long-term savings.

Various investments can be held in a stocks and shares ISA and which you choose will depend on your attitude to risk.

For more cautious investors, there are with-profits ISAs, which invest in a mixture of shares, fixed interest securities and property. Regular bonuses are added to smooth out investment returns.

An alternative is unit trust ISAs: a choice of funds, which invest in things such as UK and overseas shares, fixed interest securities and property, is available. Your investment will fluctuate in value in line with the underlying investments.

According to our figures, a mum and dad making full use of their stocks and shares ISA allowances could build a nest egg of £254,000 over 10 years, assuming underlying investment growth of 7 per cent based on 2010/11 ISA limits.

Other investments
If you have capital available you could invest a lump sum. A wise investment could ensure that future fees can be covered from the returns. You should speak to your financial consultant to find a tax-efficient and flexible approach that suits your needs.

For longer term savings, direct investment in unit trusts is a possibility. This can be tax-efficient because investors can use their annual capital gains allowance of up to £10,100 to make tax-free withdrawals.

Higher and additional rate taxpayers now pay CGT at 28 per cent while 18 per cent applies to all others. These rates are still below the equivalent income tax rates, so investment returns in the form of capital growth rather than income can be beneficial.

Talk to your financial consultant as this is a complex area.

There are other investment options available according to your timescale and attitude to risk. The latter will be a key factor in deciding what type of scheme to invest in. If you are a cautious investor you may want to choose funds with a safer but probably lower return.

Savings in trust
You could also consider regular savings plans that can be put into trust for your children. This could help with inheritance tax (IHT) planning and give you peace of mind in case anything happens to you, that the funds are earmarked for their education and in the hands of people you trust.

If you have parents who can help, they can make tax-efficient contributions to their grandchildren's education, while minimising the IHT liability on their own estates.

Finally, think about how you would continue to pay fees if your personal circumstances change, for example if you are ill, made redundant or die. It is advisable to ensure your payments are suitably protected to cover you for unforeseen circumstances.

Expensive but worthwhile
Private schooling is a substantial financial commitment, yet one that many GPs agree is worth making, as a good education can be crucial to giving children the best start in life.

The key is to start planning early. Every family will have different requirements, so it makes sense to take professional advice. The sooner you start saving the better prepared you will be to cover the costs.

  • For more advice, listen to our podcast 'Saving for school fees' produced in partnership with Wesleyan Medical Sickness
School fees tips

1. Don't panic. There are a range of savings options available, so consult your financial adviser.

2. Explore your options. Do some research and see whether there are any scholarships or schemes to assist with fees.

3. Review your assets. Do you want to pay via taxable earnings or savings returns? Look at your current assets and investments to determine whether they will cover these costs.

4. Find out if your parents can help finance their grandchildren's education.

Phil Mileham is national sales manager at Wesleyan Medical Sickness, www.wesleyan.co.ukThe above does not constitute financial advice and is for general information only

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