Reducing the cost of school fees for private education |
|
|
| Accounting | |
| Written by Rhona MacKinnon, chartered tax advisor with independent chartered accountants Campbell Dallas | |
| Friday, 20 January 2012 | |
|
Tax rates, drawing from company funds and your child’s private education. At Campbell Dallas, we can assist parents in this situation through our separate tax consultancy team which is dedicated to developing strategies to assist clients to reduce their tax liability. Other tax planning schemes do exist but, while tax efficient, they can tend to rely on the investment of a significant amount of capital to produce an income. We have established a strategy for tax planning for school fees which at the moment is primarily for higher rate tax payers who own their own businesses and since its introduction a year ago we have saved clients tens of thousands of pounds. Under our model a Trust is set up, by a grandparent, aunt, uncle or other relative, with flexible provisions for the benefit of the children, including those as yet unborn. An income source is settled on the Trust by the relative which goes to meet the educational costs of the beneficiaries. The Trustees are given the responsibility of ensuring the funds in the Trust are applied for the benefit of the children so if that means providing the deposit for a flat in the future, then that would be another acceptable use of the income. The Trust, and its establishment, is designed to fall outwith HMRC’s settlement provisions which, if invoked, can result in parents being back in the situation of being liable to pay higher rates of income tax on income drawn to fund school fees. Earlier this year we were approached by a couple who, in addition to their main income, run a partnership business providing medical services. They have two children in private schools with total fees of around £25,000 a year which they were funding through net income after paying higher rates of tax. We recommended the couple operate as a limited company and a Trust be set up for the children by their grandparents. This is now saving them around £8,000 a year which will continue for many years, even when their children advance to further education. The Trust can be used to meet anything from nursery to university fees, even living accommodation, as long as the expenditure relates to the child or children who are the beneficiaries of the Trust. The key benefits are that there is no tax on the income required to pay school fees which could mean savings of up to 50%. Other assets such as rental properties or shares in a portfolio can be settled on the Trust in place of, or in addition to, shares in the family business. No capital gains tax is payable on the transfer into the Trust and no inheritance tax is payable providing the value of the assets transferred is within the nil band rate. At the moment this model works mainly for those who own a family business, however we are currently investigating a more tax efficient solution for people in employment who pay private school fees. There is no ‘one size fits all’ when it comes to tax planning for school fees and even if you are not paying higher rate tax at the moment, or if you are trading in a partnership or as a sole trader, it is always worth having the conversation with us. Circumstances can change and planning is best carried out well in advance. With the start of another school term never far away, the sooner you explore these possibilities the more you are likely to save.
|
|
Digg it! 
del.icio.us 
Newsvine 
Reddit 
Stumble It! 
