Cost of private education rises by 49 per cent over past decade

The cost of private education in Britain has risen by 49 per cent over the past 10 years, according to new research.

The average annual fee for day pupils has increased from £9,579 in 2008 to £14,289 in 2018, said Lloyds Private Banking, which used data from the Independent Schools Council. This is 19 per cent above the rate of inflation and equivalent to more than a third of the average UK annual gross full-time earnings of £36,451.

Parents in London faced the fastest rise in school fees in the country, according to Lloyds, with average fees of £17,277 a year for private schools in the capital. In total, the average cost of a private school education in London, from reception (aged 4 to 5) to 18, is £184,782 — the highest in Britain.

Annual private school fees in the South East, at £16,176, are also significantly above the national average. Those in the North of England pay the least, at £11,630 annually or £128,397 in total from reception to 18 — about £56,000 less than in London.

Sarah Deaves, UK wealth director at Lloyds Banking Group, said: “When deciding to send your child to private school it is important to understand the financial implications throughout the course of their education. Unless parents are willing and able to fund the fees directly out of their own income or existing capital for the fixed period, financial planning is crucial.”

She added that the increase in school fees year on year had outstripped inflation for the past 10 years by 19 per cent, “demonstrating a clear need to ensure that future increases are accounted for when saving or planning”.

When facing these rising costs, advisers say the best approach is to start saving as early as possible.

Sarah Coles, personal finance analyst at Hargreaves Lansdown, said: “If you have five to 10 years or more until you need the money, consider investing in stock market funds. You should take advantage of your Isa allowance — which is £20,000 this tax year — so your money can grow in a tax-free environment.”

Others suggest asking grandparents to contribute towards education costs. Emma-Lou Montgomery, associate director for personal investing at Fidelity International, said that if grandparents are in good financial health then getting help from them can be a very effective way to cover the cost of school fees. “Not only will grandparents be helping out their grandchildren, but they also have the added benefit of potentially reducing their inheritance tax bill.”

In order for these cash gifts to be considered outside a grandparent’s estate for IHT purposes they need to live for another seven years. Grandparents can also give away up to £3,000 each tax year, exempt from IHT. “If you haven’t used the previous tax year’s annual exemption, it carries forward for one year only — making it £6,000. There is no seven-year limit on such gifts,” said Ms Montgomery.

Friday, 8 December, 2017

For those who want to contribute more, grandparents might also consider using so-called “bare trusts”. These are created when a gift is made into a designated investment account with the intention of creating a trust. The child is the beneficiary and there are usually two adult trustees. A gift to a bare trust will be exempt from IHT if the donor survives seven years.

Guy Sterling, a tax partner at Kingston Smith, an accountancy group, said: “Grandparents can settle funds on a trust for the benefit of their grandchildren and enable school fees to be paid from tax-free income. As a no doubt unnecessary bonus, this benevolence will reduce the grandparents’ exposure to inheritance tax.”

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