Most parents send their children to private school because they believe it will help give them the greatest possible start in life — to be happy, to develop their talents and social skills and achieve the best exam results they can.
When A-level results arrive this month, many parents who set their children on that journey 14 years ago will find out if the investment has paid off — at least in terms of exam results.
But what of those at the beginning of the road, contemplating the costs and sacrifices of a private education? You need to know what you are letting yourselves in for before handing the school bursar that first cheque.
How much do you need?
Taking historical data from the Independent Schools Council (ISC), we have calculated what it cost to educate one child — let’s call her Lucy — waiting anxiously on this year’s A-level results. Lucy began private education as a day pupil in reception and stayed until the end of Year 13. The school charged average fees.
By our calculations, Lucy’s 14 years of education cost her parents around £179,000. If her cousin Edward had boarded from the age of seven, his parents will have paid just over £365,000.
Inflation has undoubtedly helped push up fees over the past 14 years. But our research also shows that, over this period, school fees jumped more than 1.6 times inflation in consumer prices. Had Lucy’s parents looked at fees in 2008, budgeting for them to rise in line with CPI inflation, they would have undershot by nearly £25,000. The parents of boarders would have found themselves almost £48,000 short.
What might you expect if your child starts the journey this year? Based on this year’s fees and ignoring inflation and price rises, a private education might cost on average around £218,000 for a day pupil and £427,000 for a boarder.
Factor in rising prices and the numbers shoot up dramatically, as our table shows. If fees rise 5 per cent a year, for example, the costs jump to £323,613 and £654,919 respectively. Tuition is not the only expense. I tell families to factor in at least another 10 per cent to cover additional costs, like uniform, sports equipment, music lessons and school trips.
How to reduce costs
There are a few ways to reduce costs. Find out if the children are eligible for bursaries or scholarships. Around one in three pupils receives help with their fees, often from the school itself. Bursaries tend to be means-tested and can be particularly generous. Nearly half of all pupils on means-tested bursaries have more than half of their fees remitted and around one in seven pays no fees.
In addition, most independent secondary schools offer scholarships for pupils who are exceptional either academically or in music, sport, drama or art. These benefits — less likely to be means-tested — typically mean a fee reduction of between 5 and 10 per cent.
Investigate possible sibling discounts if you are thinking of enrolling a second child at the same school.
If you pre-pay a lump sum to cover all or part of your child’s education, the school might offer a discount or hold fees. But beware — the Financial Services Compensation Scheme does not cover prepaid school fees. Your money could be at risk if the school runs into financial difficulties. And before committing, ask what would happen if your child was unhappy and wanted to leave after a few weeks. I have known this happen. How much would you get back?
Private schooling is only affordable for many families with help from grandparents. I always remind clients that what they offer one grandchild they may feel obliged to offer all. And it might be some years before they know how many grandchildren they are to be blessed with. This can be a very expensive act of generosity.
You may want to set aside the money up front. Grandparents may favour this approach, as it can help with inheritance tax (IHT) planning.
If you have gifted a lump sum within three years of your death and your net estate exceeds the IHT allowances, HM Revenue & Customs may demand back 40 per cent of the gift in IHT. Die between three and seven years after the gift and the rate charged will taper downwards — dropping 8 per cent each year. Gifting a large sum early can get the seven-year IHT clock ticking.
Smart investing of this money can offset some of the pain of inflation. Children cannot own shares, except through a Junior Isa, but they do have the same tax allowances as an adult, including a personal allowance of £12,570 and a capital gains tax allowance of £12,300. Giving the money to the child’s parents to look after may cause tax issues for them, as any income and gains will be counted against their own tax allowances.
The simplest answer may be to set up a “bare trust”. Here the grandparent’s gift is registered through an account set up by the parents in their name but designated with the grandchild’s initials — essentially a “nominee account”. Any income or gains generated are treated as the grandchild’s for tax purposes.
One potential drawback is that the grandchild takes control of any money left when they turn 18. The alternative is a discretionary trust. Here, trustees you appoint retain control when the grandchild becomes an adult. There are significant legal and tax implications to discretionary trusts.
Whichever model you choose, once you make the gift you cannot demand the money back — even if you fall out with your grandchild or your own financial circumstances change.
If you do not give everything up front but pay regular monthly or termly fees, consider whether this is out of “excess income”. Such gifts are exempt from IHT. Set up a regular standing order and keep a record of income and gift payments to demonstrate to HM Revenue & Customs that this truly is surplus income. Your standard of living must be maintained and you are not allowed to dip into your savings to pay fees.
Let’s hope this year’s A-level results bring just reward to all those who sat the exams — and to the parents and grandparents who supported them to this point, both financially and emotionally.
Shirley Coe is a senior private banker at Weatherbys Private Bank