Pandemic puts the brake on inflation-busting school fees10 May 2021
The latest annual census just published by the Independent Schools Council has revealed that average private school fees increased by 1.1% last year as the COVID-19 pandemic put pressure on the sector. Average day school fees rose by 0.9%, the lowest ever increase recorded by the ISC and in-line with over UK Consumer Price Inflation in the 12-months to January 2021 when the census was undertaken. Two-thirds of the schools completing the census froze or reduced all their fees over the past year.
Despite the rising costs, pupil numbers at independent schools have barely been impacted by the pandemic. The figure currently stands at 532,237 and while it is down 1.3% on last year’s pre-pandemic record high, it is still the third highest total in the history of the ISC.
Jason Hollands, Managing Director at Tilney Smith & Williamson, the wealth management and professional services group, comments:
“The COVID-19 pandemic has had a hugely disruptive impact on education with periods of remote learning and the scrapping of exams. There are real concerns that many children, particularly from disadvantaged backgrounds, will be left behind.
“The independent sector has not been immune from the impact of the pandemic either. This is borne out by an average fee increases of 1.1% last year, compared to a 4.1% hike in the prior year. Yet despite a period of heightened economic uncertainty for families and the eye-watering costs involved, pupil numbers in the independent sector have remained remarkably resilient.
“With many parents concerned about the disruption caused to their children’s educations, it would not surprise me if we see an increase in independent school numbers and a corresponding pick-up again in fee increases over the coming year after a temporary pull-back. Some parents will choose to move their children from state schools to the private sector in the hope that smaller classes sizes will help their children make up for lost ground.
A Big Price Tag
“While independent schooling appears to be as popular as ever, attending them comes with a big price tag. The average annual term fee for a senior day school is now £5,333 (£15,999 pa) and £11,784 per term for boarding school (£35,352 pa) – though there are big regional variations. But the most prestigious public schools can be in excess of £40k per year for boarders. This means that the cost of sending a child to a private school for their entire school education to the age of 18 could easily be in excess of £250k and by over £165k for just secondary school. And don’t forget that on top of these there are extra costs to endure: trips, clubs, uniforms and sports kit.
Don't Embark on a Journey You Can't Finish
“The ability to finance such costs on a pay-as-you go basis out of taxed income is clearly a colossal commitment even for affluent families with high earnings. For families determined to give their children an independent education, it is therefore important to plan carefully and as early as possible to ensure they have a game plan to meet these costs and to not just embark on a journey that they may not be able to finish. The last thing any parent will want to do is disrupt their child’s education and friendships part way through because they have run out of financial resources.
Families Need to Talk
“School fee planning will in large part depend on whether the parents are going to have to soldier this burden alone, or whether other family members, notably grandparents, might be involved.
“Grandparents are often pivotal in supporting children through private education. It is natural to want to help their families out, if they are in a position to do so, and such lifetime financial assistance can also be very sensible in helping mitigate a future inheritance tax liability.
“In thinking about the prospect of sending a child to an independent school, it really does make sense to have a frank, family-wide discussion at the outset, but it is clearly also vital that grandparents do not gift assets or enter commitments that may put at jeopardy their ability to fund their retirement. This is why the cornerstone of a good financial plan is for an adviser to build a cash flow model of the parent or grandparents estimate future income and costs, to see if they have are going to have sufficient resources to finance their own needs before giving any assets away.
Plan and Invest
“The first step is to establish at what age the child is expected to start attending a private school. Some parents will chose this at the outset, when the child is aged four, or perhaps prioritise this entry at age 11 or 13. With some assumptions on school fee inflation, this will help determine how much funds might need to be generated in each year and, in turn, match any investment strategy to this liability profile. Higher risk investments such as equity funds can be used to fund costs that are many years away, with cash or less volatile assets used for the earlier years on the nearer horizon.
“Where grandparents are involved, from a tax perspective it is really best they do this directly rather than by gifting money to the parents. Regular gifts out of surplus income, which do not affect their own lifestyle, are exempt from inheritance tax and could therefore be used towards part payment of fees or other costs. However, any lifetime gift is potentially exempt from an estate for the purposes of inheritance tax, providing the person who makes the gift lives another seven years.
“A common option used in circumstances where a grandparent makes a substantial gift to finance school fees is to establish a trust on behalf the child. The gift into the trust is a potentially exempt transfer for inheritance tax purposes after seven years. In this situation the trustees retain full control over where the assets are invested and drawn down upon but as the child is the ultimate owner of trust assets, they will be taxed against the child’s income tax and capital gains tax allowances/exemptions, making this very tax efficient.”
For more information on financial gifts read our guide here.
About Tilney Smith & Williamson
Tilney Smith & Williamson is the UK’s leading integrated wealth management and professional services group, created by the merger of Tilney and Smith & Williamson on 1 September 2020. With £56.0 billion of assets under management (as at 30 September 2021), it ranks as the third largest UK wealth manager measured by revenues and the sixth largest professional services firm ranked by fee income (source: Accountancy Age 50+50 rankings, 2021). The Group currently operates through three principal brands: Tilney, Smith & Williamson and online investment service Bestinvest. It has a network of offices across 28 towns and cities in the UK, as well as the Republic of Ireland and the Channel Islands. Through its operating companies, the Group offers an extensive range of financial and professional services to individuals, family trusts, professional intermediaries, charities and businesses. It is uniquely well-placed to support clients with both their personal financial affairs and their business interests. Tilney Smith & Williamson’s personal wealth management services include financial planning, investment management and advice, online execution-only investing and personal tax advice. For businesses, its wide range of services includes assurance and accounting, business tax advice, employee benefits, forensic advice, fund administration, recovery and restructuring and transaction services.