30 Dec 2024

Who Can We Help: School Fees

Most of us have heard the saying prevention is better than cure. In financial planning, there are hard conversations that can be made easier by preventative measures.

In the coming months we’ll be exploring some of these possible conversations. If you or someone you care about hasn’t had a hard conversation like the one we describe in this article, or can’t confidently say you’re sorted on these issues, please get in touch for a free initial chat about your circumstances and potential planning needs.

School fees – “our kids might not be able to join their friends for secondary school”

With the recent confirmation that VAT is to be levied on independent school fees, this means that fees will typically rise by at least 12-14% from January 2025. Many parents are already stretching themselves financially to give the best possible start in life to their children.

For most hard-working families the rise in school fees is a real consideration in their budget, added on top of higher-for-longer interest rates on mortgages, and the potential for reduced take-home pay for both employees and business owners due to the proposed rise in national insurance contributions by employers.

Careful cashflow modelling with a  financial planner can help a family to evaluate their existing resources and the affordability of school fees and all the related costs (including inflationary increases) in the medium and longer-term. Sensible investment now of sums intended to fund school in a decade’s time can allow compounding to grow the funds.

Another option – opening the conversation to wider family – isn’t an easy step to take, but it can prove hugely helpful. Grandparents could offer to support school fees in a number of ways, ranging from gifts from regular income, to giving funds either directly or to a trust set up for the specific purpose of education. Larger gifts or trust settlements can get the capital out of the grandparents’ own estate (providing they survive 7 years from the date of gift) where it may otherwise be subject to inheritance tax at 40% on estate values above £1m for a married couple (£325k each Nil Rate Band, £175k each Residence Nil Rate Band – only on passing a home to direct descendants). A threshold which is increasingly common if the mortgage is paid off and you have a detached home in the south-east, and especially with the recent budget announcement that personal pensions are going to be part of a person’s estate from April 2027.

Extending this sort of help may also be very satisfying for grandparents – who get to see the benefit of their support when it really matters and is most needed, rather than only long after they’re gone.

Getting creative about school fee funding, even to the extent of involving multiple generations in payment for schooling, is not an easy conversation to start, but I’ve facilitated and also been part of these discussions, and they can help a whole family to come together to support each other when it’s most needed.

The Financial Conduct Authority does not regulate Inheritance Tax advice. Levels, bases of and reliefs from taxation may be subject to change and their value depends on your individual circumstances.

Article updated Sep 2025