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A legal view on school fee planning

Cost and affordability are commonly the onus of planning regarding school fees, but a greater emphasis should be given to events that may have a detrimental impact. This article looks at three events that can easily be planned for, but often get overlooked or ignored.

Coins in glass jar with education label, books,glasses and globe on wooden table.

Andrew Neal

in Features


Tax and life events

Not only does affordability need to be considered from a financial planning point, but the tax and control implications should be planned for as well.  With increasing numbers of parents struggling to meet fees from income, it is often grandparents who assist.  With careful thought, grandparents can assist in a tax-efficient manner.  

A grandparent could use the little-known Inheritance Tax exemption ‘Normal Expenditure out of Income’.  If structured correctly, such arrangements could mean that a grandparent could pay school fees without any Inheritance Tax consequence. 

For example, if Mr Smith has an annual income of £95,000 and expenditure of £65,000 and this is a regular annual pattern, then there is the opportunity for Mr Smith to be giving some or all of the annual surplus of £30,000 away to his children or even directly to the grandchildren.  This relief avoids the need for Mr Smith being required to survive the said gift by 7 years, for it not to have any Inheritance Tax consequence.  In respect of claiming this relief,  Mr Smith’s personal representatives would need to provide HM Revenue & Customs with supportive information on his death – practically, it makes their lives easier if Mr Smith has kept good records.

Another opportunity for Mr Smith is for him to utilise his annual allowance for Inheritance Tax purposes.  This means that every financial year, he could be giving a sum of up to £3,000 away without the requirement to survive that gift by 7 years.  Mrs Smith could also be giving the same away.  Therefore, Mr and Mrs Smith could be giving a total of £6,000 away each year towards school fees, without any Inheritance Tax implication.

Practical consideration such as: who to gift to; when and how, should all be on an agenda.  In terms of whom to gift to, do they gift a sizeable sum if there is a risk of divorce?  Would a trust paying school fees directly to the school or paying monies to the children be other possible solutions?  If the school fees are paid to the school directly, what would occur if the said school ceases to operate, merges with another or it is simply not the right environment for that child?  All these things need to be planned for. 

Loss of capacity – something worth planning for

If school fees are to be funded from investments in someone’s sole name, what would be done if that person loses capacity?  A carefully drafted Lasting Power of Attorney, dealing with property and financial affairs, could so easily assist with such a scenario.  A Lasting Power of Attorney may not be the only element to consider, in that it would be worth planning as to how investments are held going forwards or whether there are financial products available to reduce the impact of such a scenario arising.  From this perspective, whether it makes sense for investments and/or cash to be held jointly, so if one person loses capacity, the surviving person, in terms of capacity can easily access, is something for consideration. 

There have been a series of very recent cases, brought by the Office of the Public Guardian, which give useful guidance to Attorneys as to how the Donor’s money can be spent on third parties.   


Death is something that nobody likes to discuss, but a plan for the inevitable is key.  The situation of leaving no Will means reliance on the law (known as the intestacy provisions).  This can lead to unexpected difficulties where a couple is married, and even greater difficulties if co-habiting. 

For example, the intestacy provisions may well lead to adverse and unwanted Inheritance Tax consequences (i.e. an element of the estate passing to non-exempt beneficiaries, such as minor children) and wealth passing to children before they barely finish senior school.  Although there are mechanisms within the law to alleviate such issues, they can be costly, time-consuming and can potentially lead to bereaved children taking other family members to court, to seek court approval for amendments.

For example, Mr and Mrs Jones have two children who are educated privately.  Mr Jones is 42 and Mrs Jones is 41.  They have a net combined estate of £2.4m, after taking into account a mortgage over the family home.  The mortgage over the family home is £600,000.  They do have life cover, which clears the mortgage on either of their deaths.  The mortgage free element of the family home is £400,000; this is owned jointly by Mr and Mrs Jones.  The remaining £2 million is an equities portfolio which Mr Jones has inherited.  The broad purpose of the portfolio is to fund the children’s education, which is costing £52,000 per annum.

Mr Jones suddenly dies, leaving no Will.  He has made no gifts in the 7 years up until his death.  In the above scenario, although Mrs Jones receives Mr Jones share of the family home and enjoys the benefit of a life policy, the consequences of having no Will are significant.  The intestacy provisions will apply, meaning that Mrs Jones receives a statutory legacy of £250,000 plus a half share of the remainder.  The remaining half is held on statutory trust, until the two children reach the age of 18.  The elements passing to Mrs Jones will be spouse exempt, for Inheritance Tax purposes.  The remainder will be subject to Inheritance Tax at 40%.  Therefore, on the above figures, the gross sum passing under the statutory trusts will be £875,000.  The first £325,000 will be taxed at 0%, with the remaining £550,000 being taxed at 40% (i.e. a tax bill of £220,000).

With a simple Will for Mr Jones, leaving everything to Mrs Jones, the Inheritance Tax bill of £220,000 could be avoided.

The key consideration must, therefore, be a Will that would deal with such a terrible event and allow for children to receive the appropriate support and continuity that would be so desired.  If nothing else, who would look after the children, if both parents die? A carefully crafted Will can easily avoid such consequences arising.

There is little doubt that control, taxation and costs are key to any planning, but to fail to make any plan could have detrimental consequences for scenarios that can arise, that generally, are likely to have significant impact on any family. 

The above must not be taken as advice and is generic.  Advice should be tailored to an individual situation and it would be strongly recommended that such advice is sought on any of the above.

Andrew Neal is a Private Client Solicitor and Member (Partner) of Godwins Solicitors LLP.  He is a member of the Society of Trust and Estate Practitioners and is ‘notable practitioner’ in the current Chambers High Net Worth Guide.

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