Grandparents pick up half a million pound private school bills – Duncan Lawrie Private Bank comment on the cost of educating three children

19 Sep 2012

It now costs in excess of £500,000 to send three children to private school, according to latest figures from Duncan Lawrie Private Bank. This will involve a significant financial sacrifice, even for a wealthy family. One way to help pay the bill will be for grandparents to make a contribution, which can be done by setting up a discretionary trust. This has the double benefit of efficient inheritance tax planning, whilst at the same time funding the grandchildren’s education.

Paul Barry, a Chartered Financial Planner at Duncan Lawrie Private Bank, commented:
“School fees will have to be paid for 10 years before all three children complete their education, assuming they start at age eight. At its peak, with all the children at school at the same time, the cost will hit £60,458* in one year alone. The demand on the parents’ finances is therefore considerable, which is why grandparents often offer to help out, but all of this requires very careful tax planning.”

Grandparents can individually offset the maximum amount of £325,000 permitted under the inheritance tax threshold, known as the nil rate band. This means a discretionary trust will not have an immediate tax bill. Assuming the grandparents live for a further seven years after the gift is made, the capital is outside their estate for inheritance tax purposes.

Even though the money is in a trust, the grandparents retain control of it, including making distributions of capital directly from the trust to contribute towards their grandchildren’s private school fees in the most tax efficient way. Trustees can also invest and manage the underlying trust fund using various asset classes such as cash, fixed interest and equities, timing dividends and interest receipts to match fee payments.

Paul Barry adds:
“Creating a discretionary trust, along with long term financial planning, enables us at Duncan Lawrie Private Bank to tailor solutions according to individual client needs. For instance, we can point out that flexible trust rules allow payments for grandchildren who have not yet been born, or cover any future change in circumstances such as divorce.”

*Figures are based on UK averages from the 2012 census from the Independent Schools Council, assuming three children attending day school between the ages of 8 – 18 and school fees rising annually at a rate of 5%.

Paul Barry, Chartered Financial Planner, at Duncan Lawrie Private Bank

To speak to Paul Barry at Duncan Lawrie Private Bank, or for further information, please contact:
Sarah Tomlinson, Account Manager, at Templars on:
Tel: 0207 409 5236