With boarding school fees in excess of £10,000 per term, the cost of a senior school education quickly mounts up. Finding this from taxed income is a challenge so it is worth considering the options for inheritance tax and school fees planning and to do this effectively early planning is important.
A common approach can be for grandparents to combine the tax advantages of an investment bond held outside of the UK, with the ability to use a child’s personal income tax allowance.
Such an investment is set up in trust (by someone other than a parent) for the benefit of a child with the parents retaining control as the trustees. As fees become payable, the trustees can encash part of the trust and any gain is assessed on the beneficiary, at the child’s tax rate.
The advantages of such an investment structure for inheritance tax and school fees planning are considerable. Firstly, because grandparents are providing the capital, the tax rules relating to parental gifting do not apply. Secondly, provided that the grandparent survives for seven years, the original lump sum investment will have fallen completely outside of their estate for inheritance tax purposes.