The cost of an independent education is now £535k per child*, but investing early could save you £246,556

While independent schools are as popular as they have ever been, the costs of a private education have continued to rocket at a pace well ahead of overall inflation. In its most recent annual census The Independent Schools Council, which accounts for about 50% of all independent schools and 80% of UK independent school pupils, revealed an average yearly rise last year of 3.7%, the sharpest rise since 2014, but with big regional differences. In London, fees tend to be about 8% to 15% higher, with an average increase last year of 4.1%m and most prestigious public schools often charge in excess of £40k per annum for boarders.

Based on the ISC data, leading financial planning group Tilney estimates that for a child born this year, whose parents intend for them to go to independent day schools from nursery at age 3, followed by prep school and then board at a senior school from age 11-18, the average total nominal cost of their education will be £534,702. This assumes an annual average school fee inflation rate of 3.7%.

To say that school fees represent a significant expense for many people who wish to give their child a private education is putting it lightly.

Gary Smith, Chartered Financial Planner, at Tilney said:

“The costs of an independent education are eye-wateringly expensive, with fee inflation driven by an arms race between schools to add new facilities and more recently sharp rises in the costs of funding teachers’ pensions.

“These costs obviously seem like an insurmountable hill to climb that are too difficult to fund out of taxed income on a pay-as-you go basis. However, by planning ahead and investing early, an independent education can become much more financially attainable.

“For example, in the scenario where the intention is for the child to start at nursery from age three and board from age 11 until 18, the projected £534,702 average costs could be met if the family were able to invest £288,146 now, and achieve an annual 5% growth rate (this is 1.3% p.a. higher than the assumed inflation rate). In this scenario, that would result in total, nominal, saving to the parents of £246,556, almost halving the cost.

“In essence, a very significant portion of the heavy lifting will be done by investment growth. That growth, if the assets are structured properly, could be accessed with minimal tax cost. Given that it is growth you’re aiming for, the sooner these structures are set up, the better. While you can obviously continue to invest while your child is in school, putting money aside as soon as they’re born could be highly beneficial.

“While parents with young children make struggle to find such large amounts cash to invest, the more than can be done at an early stage, the better. In particular, grandparents who might be in a position to help out, can also potentially reduce a future inheritance tax liability by funding a school fee plan, so this can also form an important part of an estate planning strategy.

Educational Trusts:

“One of the best ways to do this is with a Bare or Discretionary trust. The difference here is that we would recommend the setting aside of an amount which has been specifically calculated to be the net present value of future education costs. In this way, the initial gift into trust (£228,146 in the simple example above) would not be a Potentially Exempt Transfer or Chargeable Lifetime Transfer, but would be immediately exempt under the “Gifts for maintenance of family” exemption - if settled by parents or a legal guardian.

“Furthermore, if that trust is established as a bare trust it will be able to access the child’s tax rates and allowances. Bear in mind that you’re effectively establishing a sinking fund here. This should help to allay concerns about the child becoming absolutely entitled to any assets at age 18. Although exempt from inheritance tax, this gift is not really about passing significant wealth on to the child or grandchild, it is specifically about meeting education costs out of investment growth with minimal tax cost.”