Canada LifeMar 24 2017

Pinpoint school fees planning

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Canada Life
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Supported by
Canada Life
Pinpoint school fees planning

Many parents value the standard of education offered by independent schools and will pay for that privilege.

Planning for the fee payments can help. Even if the children do not go to an independent school, they could go to university.

In this case, the children can end up with a huge outstanding student loan which may end up being a burden for many years. Planning for these costs can help avoid that situation.

School fees

The average fee for a boarding school is £10,317 a term (£30,951 a year) but if the child does not board and attends daily it is £5,827 a term (£17,481 a year).

For a child attending a day school, the average fee is £4,313 a term (£12,939 a year).

In addition, fees have increased considerably over the years and they increased by 3.5% on average last year (Source: Independent Schools Council, annual census 2016).

The overall cost could exceed £300,000 (Source: Education Advisers Ltd) – and that is just for one child. Without planning ahead the cost would be a huge drain on earned income or lead to a need for borrowing.

In some cases the grandparents can help out and this can be very tax efficient. 

In this article, we demonstrate how an international investment bond and segmentation can be used to effectively fund education costs.

Of course, the actual costs can vary and are unknown at outset.

So to pinpoint the actual amount needed, and not draw unnecessary funds, it can be advantageous to use an international investment bond that can drill down the segments to a minimal level.

In the case study below, we use a bond that can be segmented into a maximum of 99,999 segments with no minimum investment for each segment, for full flexibility. The default set-up for an international investment bond is 1,000 individual segments, so we will use that figure in the example.

That means that the needs can be pinpointed with no significant surplus funds being realised. Let us now look at a case study.

Case study

Tony and Jane Birmingham are both higher rate taxpayers and wish to make provision for the private education of their grandson, Joshua.  

He is going to a very reasonably priced school as a day pupil and annual fees are currently £10,000. We will assume that they will rise by a modest 3 per cent each year. 

Josh starts secondary school in five years’ time and will continue there for seven years until he is age 18. 

Tony and Jane expect to remain higher rate taxpayers and have £100,000 available for investment.

Their adviser recommends that they take out an international investment bond, which is to be divided into 1,000 individual segments of £100.

If they simply invested in their own name and assuming an annual return of 4 per cent each year (ignoring product charges), how would this strategy fare?

For more information, read the full article here.

Jeremy Pearson, technical support manager with Canada Life's  ican Technical Services Team.

Canada Life offers a range of wealth management solutions, including retirement income planning, estate planning and investment solutions from a choice of jurisdictions, including the UK, Isle of Man and Republic of Ireland.