Putting a child through private school costs £275,000

As children across the UK start the new school year, the latest figures reveal that putting a child through private education will cost a family around £275,000 in school fees, which means that funding private schooling requires long-term planning and is an education in itself for parents who are seeing fees rocket.

Average fees have risen by 3.4% compared to last year, according to the Independent Schools Council’s (ISC) latest annual census. Inflation stands at 2.5%. The study found the average fee per term is £5,700. To help cover the cost, parents need to start investing early, ensure they are generating returns greater than school fee inflation and take advantage of tax breaks. There is no one investment strategy or savings scheme that does the job for everyone, but planning ahead helps enormously to ensure there is time to build up a decent education fund.

Here are FIVE tips to cover the cost without borrowing:

1) Start early and benefit from compounding

The sooner you save, the better. And the magic of compound growth can seriously boost your savings. In simple terms, your money earns a return in the first year, in the second year both the original cash and the return benefit from any growth in the second year. In the third year your investment is further enhanced by any returns achieved. This snowball effect is called compound growth.  Alternatively, you can increase the amount you invest each year, in order to meet the costs sooner.

2) Ensure that your money is growing as quickly as school fees

Since the cost of school fees has risen by 3.4% in the last 12 months, any parent investing to cover the cost of private education would have needed their pot to generate returns of at least this rate. At the beginning of 2018, the average cash ISA account offered a return of around just 1%. Yet savings into a stocks and shares ISA would have generated a return closer to 5% during the most recent tax year

3) Accept help from grandparents

If grandparents are in good financial health then getting some help from them can be a very effective way to help cover the cost of school fees. Not only will grandparents be helping out their grandchildren, but they have the added benefit of potentially reducing their inheritance tax bill. Each person is entitled to give away up to £3,000 a year free from IHT. Also, if they make regular contributions out of their income – without eating into savings or sacrificing their standard of living – it’s considered a regular gift from income and is outside their estate for inheritance tax purposes immediately.

4) Tax-efficiency matters

You can invest up to £20,000 during this tax year into an ISA where all returns and interest earned are sheltered from both income tax and capital gains tax. As such, those investors looking to build up a long-term income stream should consider investing through an ISA.  Investors can also earn up to £2,000 of dividend income outside an ISA each year tax-free.

It’s also worth knowing that if you do decide to hold any savings in cash (outside an ISA), the Personal Savings Allowance enables basic-rate taxpayers to earn tax-free annual savings income – interest – of up to £1,000. Higher-rate taxpayers receive a £500 allowance. Additional rate tax-payers however, don’t get any personal savings allowance.

5) Check if the school offers bursaries and scholarships

A third of pupils receive help with their fees, according to the Independent Schools Council. Many schools have extended bursary provision and this year almost £400 million was provided in means-tested fee assistance for pupils at ISC schools. A scholarship, offered to talented children, will cover up to 20% of the school fees bill. You can also talk to the school for any available discounts. You may be entitled to one if you have more than one child at the school, or if you agree to pay for a number of years in advance.

Ben White

Article is accurate at date of writing.