Campbell Dallas: School Fees, a Family Affair

Campbell Dallas

School Fees – a Family Affair

With the costs of private school education continuing to rise, we see an increasing number of grandparents assisting with payment of their grandchildren’s school fees.

In the last Independent Schools edition of Business Women Scotland, I highlighted that school fees traditionally must be paid for from income that has already been taxed, often at 40% or 45% and that doing a little planning can make the costs more affordable.  Campbell Dallas can offer a solution which could significantly reduce the cost of school fees for grandparents by removing some or the entire tax burden.

Who is Suitable

The planning is suitable for a grandparent who has a stake in the family business and can thus extract income via dividends. Commonly this would suit owners of a limited company but the planning can be tailored to suit partnerships, sole traders or those with a rental income portfolio.

What does the planning involve?

The planning is bespoke and will be tailored to suit the needs of each client however the basic feature of the planning is the establishment of a trust which will be gifted shares in the business by the grandparent. The rights attached to the trust shares will ensure that control of the business and its underlying capital value remains in the hands of the existing shareholders, with the trusts having a right to dividends. Dividends are then paid to the trust to allow it to meet the school fees of the beneficiaries. Implementing the planning will generate tax savings by allowing up to £16,000 per annum to be paid per child without a personal tax charge arising in respect  of that income, through the use of the children’s personal allowances. The more grandchildren at private school, the higher the costs will be which in turn increases the potential savings. The structure is flexible and can be collapsed once there is no longer a need for the income stream.

Is it just for paying school fees?

The planning allows for the educational costs of the beneficiaries to be paid from gross income. As well as school fees, the educational costs can include books, school trips and extra curricular activities, for example. The planning can also be used to meet nursery, school or university fees, or other family maintenance costs. The planning is bespoke and tailored to each client’s circumstances. If you are interested in finding out more about the potential savings to be made please do not hesitate to get in touch to arrange an informal discussion.

Whether incorporation is the best option for you will depend on your personal circumstances and your future intentions and should be discussed with a professional tax adviser.

If you would like to explore this issue further or have any general tax questions, please do not hesitate to contact my PA Jackie Morrison  at jackie.morrison@campbelldallas.co.uk or telephone us on 0141 886 6644