Wealden Times | WT261 | February 2024 | Education Supplement inside

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Helping HAND
What is the best way to pay school fees for your Grandchildren?
It is only natural to want to give your
loved ones the very best start in life.
As the cost of private education in the
UK continues to rise and with the
possibility that a future Government
may push these even higher by
removing the VAT exemption for
fee-paying schools, now more than
ever, Grandparents are stepping
in to help pay for school fees.
Doing so can be a very tax efficient
way of passing on assets as part of a
wider estate plan, but it is important
for individuals to carefully consider the
best way of gifting money for school
fees, based on their unique situations.
Here, we outline some of the
options open to those who are
thinking about funding private
education for their grandchildren.
Gifting cash outright to
pay for school fees
Perhaps the simplest option is
making an outright gift to pay for
school fees. Such gifts are Potentially
Exempt Transfers (known as PETs)
and are only taken into account for
Inheritance Tax (IHT) purposes if
you die within seven years of the gift.
This is known as the ‘seven year rule’.
Some gifts are completely left out of
the IHT calculations, and are not
subject to the seven year rule. You can
give away £3,000 a year and can roll
forward one year’s allowance if it was
not used the previous year. You can
also give up to £250 to an unlimited
number of people each year. However
these are unlikely to be enough to
cover school fees on their own.
Gifting cash out of
surplus income
Regular gifts made out of surplus
income rather than capital are exempt
from IHT, and so paying school fees
termly could fall under this. It is vital
to keep detailed records of such gifts
to assist your executors down the line.
It is worth looking at HMRC’s
form IHT403 to see the
type of records that your
executors will be expected
to provide to show that
any gifts were actually out
of surplus income and not
investments or savings.
Setting up a trust to
pay for school fees
Another option would be to set up a
trust. This is a particularly good option
if you want to give away money, but
would still like to retain some control.
There are a wide variety of trust
structures, but the most likely ones to
be used for this purpose are generally
either a discretionary or bare trust.
There are specific tax implications
involved with setting up trusts, including
both IHT and Capital Gains Tax, so it
is really important to take expert advice.
On a final note, while it is admirable
to wish to help your loved ones, it is
also important to ensure you retain
enough capital to ensure you have
a comfortable retirement, especially
taking into account the rising cost of
care. Only gift what you can afford.
If you have any questions about the
above points, or anything else related
to wills, estate and tax planning,
then one of our team would be
happy to help at info@ts-p.co.uk.