Grandparents & Independent School Fees

This is leading many grandparents to consider if, and how, they can help the younger generations of their family with the rising cost of an independent education. If you are in this position, it is important to be aware of how you can do so in a tax efficient way. There are a number of available options.

Annual Allowance

Any contributions you make towards school fees are treated as a gift to your grandchild for Inheritance Tax (IHT) purposes. Each grandparent can gift £3,000 in total per tax year with no IHT implications. Two grandparents who are married or in a civil partnership can combine their allowances, providing a total of £6,000. Any unused allowance from the previous tax year can be carried forward one year, which can provide a couple with an allowance of up to £12,000.

This is a good start. But with some independent school fees exceeding £18,000 per year – per child – you may be wondering what more you can do.

Gifts out of Surplus Income

If you make regular contributions to school fees out of your surplus income – not capital – then these gifts will not be subject to IHT, regardless of their amount. For grandparents who enjoy a healthy level of income that they struggle to spend on themselves, this can be a very useful way for them to support their families with fees whilst minimising the overall exposure to IHT on their own estates.

School Fees Trust

Rather than making gifts to your family or to the school directly, you may wish to retain more control over how the money is used. By placing a lump sum in to a discretionary trust, the trustees (who could include you) can decide how the funds should be used.

While a trust can be a very useful estate planning tool, you should be aware that there are usually costs of establishing and running a trust as well as potential IHT implications to you of setting one up.

If you are interested in finding out more about any of the above options, contact our Private Client Team today on 020 8290 0440.