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Public school fees paid upfront

(46 Posts)
UnlikelyFinancialGuru Sun 18-Nov-18 09:20:28

We have been given the opportunity to pay a substantial amount towards school fees for our son in advance of him attending.

However, he is a baby and will not be attending said school for 6 years... There are very good reasons to pay up front (tax related), but I’m unsure about the practicalities. Has anyone done this before? What was your experience?

Thanks in advance.

SayNoToCarrots Sun 18-Nov-18 09:22:01

What? 😂 Why? What if the school burns down in the next six years? What if you move? What if you find a more suitable school?

Neighneigh Sun 18-Nov-18 09:27:02

My in laws did this and my husband went to the school aged 8 (actually I'm not sure how far ahead they paid. MYbe not as early as you). When he got to sixth form the school tried to ask them to pay for those two years but fortunately mil had kept all the paperwork to prove they'd paid all the way through.

A lot of private schools are struggling financially though (and closing) so yes, it is a gamble

milkjetmum Sun 18-Nov-18 09:27:17

Seems a bad idea, even a great school can be the wrong fit for a child.

Sunseed Mon 19-Nov-18 11:15:12

Unless there is a substantial discount on offer that would be more valuable than the interest/gain you'd earn on the same money over the time period, then if it were me I'd prefer to keep control over my capital and hold on to it until the fee bills come in. I'd ring-fence it and use my annual ISA allowances to shelter from tax.

AveEldon Mon 19-Nov-18 11:21:43

Sounds dodgy to me
Are you sure it's a genuine offer from the school as opposed to a scam email?

UnlikelyFinancialGuru Mon 19-Nov-18 16:45:05

Thanks everyone. It’s not a dodgy offer - the money is from my family. Putting it into a schools trust would represent a saving of 40% for various tax reasons.

All the reasons you mention (leaving the towns / the school bit being right), are those I had worried about, hence wondering if anyone had real life experiences. Thanks v much for the replies - much appreciated.

AveEldon Mon 19-Nov-18 18:46:23

Ah you made it sound like you were paying the school direct as opposed to setting up a School Fees Trust

UnlikelyFinancialGuru Mon 19-Nov-18 21:02:51

In would be paying the school directly - not putting it into a trust. If the money is moved from where it currently sits to a charity, no income tax is paid on it. Public schools are effectively charities, hence it representing a huge saving.

Sorry for being unclear.

prettywhiteguitar Mon 19-Nov-18 21:05:14

The only people I know who have done this have sent their children to the prep school first and know the senior school is a good fit and won’t go bust !

Namechangeforthiscancershit Mon 19-Nov-18 21:09:22

Surely it’s a saving of 40% of the increase in value over the 6 years or whatever that it’s there? So if you said 1% and you were paying £10,000 a year you’re saving tax of £40? The fees must be TONS to be worth the risk?

Or is it an IHT thing and it’s a gift from an older relative with a chargeable estate? That would be a better reason potentially.

Namechangeforthiscancershit Mon 19-Nov-18 21:11:31

Sorry you’ve said it’s from your family already! I will learn to read. So good for IHT to get the payment made sooner rather than later, but lots of risk, and the charitable status isn’t relevant.

Interested to know what the income tax angle is.

Presumably you are very confident this is the right school.

AnotherNewt Mon 19-Nov-18 21:16:40

I think it is highly unlikely that a school would accept payment before they have offered the prospective pupil a place.

OKhitmewithit Sat 24-Nov-18 22:11:10

if you get something in exchange for your contribution to a charity - eg an education, you can’t claim it and save the 40%. Not sure what loophole you think you’ve spotted, but would love to know.

moredoll Sat 24-Nov-18 22:18:56

Public schools are effectively charities,

Going off-topic here You're right, they are. It's one of the few things that makes my blood literally boil. They really really shouldn't be, unless over 50% of their students are on full scholarships.

SavoyCabbage Sat 24-Nov-18 22:27:41

I can think of about eight reasons it's a terrible idea and none why it isn't a terrible idea.

OKhitmewithit Sun 25-Nov-18 08:34:05

If this is an off shore bond that is being allocated to the children and paid using their income rules, I can see the saving. You can however use the multiple policies to allocate and that would work.

You are mistaken that the charitable status matters. You are NOT donating to charity, you’re buying a service from a charity.

OKhitmewithit Sun 25-Nov-18 08:36:00

Personally I’d set up an absolute trust if the policies are too large and get them out that way.

Biologifemini Sun 25-Nov-18 08:40:51

School fees go up 5% per year on average.
And schools are encouraged to check out money laundering these days.
It is doubtful any school will take the money so far in advance these days.
London schools in particular are getting warnings more stringent checks will be in place.
Kids of dictators that have asset stripped are the targets, but it will affect everyone.

OKhitmewithit Sun 25-Nov-18 08:47:23

Yes but if you can demonstrate the source, no issue.

The saving on school fee inflation isn’t a given though, some prepaid fees give a discount only on the actual fees, not the price of the fees today.

I’m still surprised that the OP thinks she’s spotted a loophole. A lot of people spend a lot of time looking at this and so far, nothing.

Prettyvase Sun 25-Nov-18 09:04:23

Put the ££ into property for your son as historically land priced always increase significantly over a lifetime.

If your son is bright, pooular, sporty and with great social skills then he won't need to go to an independent school as he'll do well wherever he is and so that would then save you £s!! grin

UnlikelyFinancialGuru Tue 27-Nov-18 21:07:50

Thanks everyone. Great points all round - much appreciated.

My family member is an insurance underwriter. Their payouts each year sit in an account on which no tax is payable so long as it isn’t moved from the insurance account. If it is, income tax at 40% is applied. The only exception is if that money was paid directly to a charity and not in to the relative’s personal account.

So say the school fees are £10k per year for 10 years, we effectively get 4 years ‘free’, because to pull down the money in any other way it would incur a large tax sum.

OKhitmewithit Wed 28-Nov-18 07:11:27

The only exception is if that money was paid directly to a charity and not in to the relative’s personal account

Yes totally correct, but NOT if something is then given in exchange. You are not giving it to a charity, you will be buying a service from a charity.

UnlikelyFinancialGuru Wed 28-Nov-18 08:02:26

Interesting. The school haven’t mentioned that! Will research further.

OKhitmewithit Wed 28-Nov-18 14:33:38

The school aren’t responsible for your relatives tax return though. They aren’t financial experts, hopefully they are experts at teaching children.

Why would a gift to a charity and a financial transaction both benefit? If I could save tax by purchasing from a charity, Amazon would be a registered charity by now doing minimal good work in our community! It’s GIVING the money that saves the tax. Why do you think when you tick the gift aid box you have to state if you’ve received any goods or services in return.

UnlikelyFinancialGuru Wed 28-Nov-18 19:20:52

I tick the gift aid box at the science museum when I hand over my tenner, then I enjoy the lovely museum. I’m getting something for that.

We donated a significant sum of money to a hospice when a family member was there. We definitely got something for that.

How is the difference measured? It’s got to be about voluntary payment, surely, not whether something was received in exchange?

Bombaybunty Wed 28-Nov-18 19:26:43

We did it. My father paid the prep school fees for 5 years in advance . DD was already at the school when we paid though. It meant we were exempt from fee increases.

Now we only pay on an annual basis as the senior school didn't offer a good deal.

OKhitmewithit Wed 28-Nov-18 20:26:19

The science museum is voluntary, the hospice care was NOT in return for your donation. Your child’s place at the school is dependent on your ability to pay. If you don’t believe me, call HMRC wink

AlexanderHamilton Wed 28-Nov-18 20:32:49

Also the science museum is getting the tax relief on income tax you have already paid. You can only tick the box if you have paid the tax. And it’s the charity getting the tax relief, not you.

meditrina Wed 28-Nov-18 20:47:32

Fees in advance for an existing pupil (or one with an offer to join) is a totally normal arrangement, but based on advance purchase of services. It is not a (potentially tax exempt) charitable donation.

It's unheard of for a school to take fees in respect of a child who might be a prospective pupil several years in the future.

scaevola Wed 28-Nov-18 20:52:21

You cannot claim Gift Aid on school fees

You can claim them in Science Museum entrance donation - because it is just that, a voluntary donation as there is no entrance fee for the main museum. You use gift aid on the special ticketed events within the museum as those are actual fees for the service.

So yes, you could donate to any charity you like for the tax break. But it will be just that, a donation. You don't get any services in return.

OKhitmewithit Wed 28-Nov-18 21:28:31

And it’s the charity getting the tax relief, not you That’s not actually accurate. If you make donations and are a higher or additional rate tax payer, you also get relief.

UnlikelyFinancialGuru Thu 29-Nov-18 19:48:38

Wasn’t trying to get Gift Aid in school fees...

Thanks again everyone. Seems that others have done it to avoid annual rises. Will consider paying if / when DC starts at the Prep.

scaevola Thu 29-Nov-18 20:53:03

I had hoped that, even though you brought up the example of Gift Aid in the first place.

I assume you've now had a chance to check up on the tax differences between a straight donation to charity on exiting the other investment, and fees in advance (which is not a charitable donation, and cannot be made other than for pupils or confirmed joining pupils) and that is why you are waiting until DC is joining

OKhitmewithit Sat 01-Dec-18 15:16:54

Wasn’t trying to get Gift Aid in school fees

What do you think saving 40% tax by paying money to a charity is confused That’s exactly what you thought you’d be doing —tit—

UnlikelyFinancialGuru Mon 03-Dec-18 14:01:06

@scaevola no I didn’t, HITMe did.

Growingboys Mon 03-Dec-18 14:09:08

Honestly you'd be mad to pick a school now - you have no idea what your child will be like or what will be right for him.

Very, very bad idea

Growingboys Mon 03-Dec-18 14:09:55

Also, all the good schools require the child to sit an exam and an interview, so what if he didn't get in?!

user187656748 Mon 03-Dec-18 14:11:00

The only exception is if that money was paid directly to a charity and not in to the relative’s personal account.

As others have said, it simply doesn't work like this I'm afraid.

Your relative is quite welcome to make a charitable donation to the school. They move the money out of the account and donate it to the school which is charity. All fine.

But this all falls down if they make the "donation" in return for a school place even if on paper the school accepts their generous donation, spends it on computers and then coincidentally offers a "free" school place. TBH I'd be running a mile from any school who even considered such an arrangement.

Paying school fees out of taxed income up front is perfectly lawful though (although a little foolish given the number of independent schools in financial difficulty).

Believe me, if there was a loophole to enable fees to be paid out of untaxed income, plenty would be doing it.

FusionChefGeoff Mon 03-Dec-18 14:27:29

Here's a shock idea - pay the tax due on the presumably sizeable assets?

OKhitmewithit Mon 03-Dec-18 18:08:16

Hopefully OP has realised now that direct payment of any realised financial asset won't actually save the tax due on that asset unless it is a gift and not a transaction.

very unlikely financial guru

UnlikelyFinancialGuru Tue 11-Dec-18 19:05:51

Thanks everyone. Not sure I’ve ever encountered such a sarcastic and passive bunch of people. Hiding behind the keyboard really is a joy for some, I see.
I appreciate the views of those who answered the question. Merry Christmas.

OKhitmewithit Tue 11-Dec-18 19:12:15

passive Eh? English and finance not your strong suit OP.

Just because your tax evasion plan was spotted and debunked, you get upset.

BoogleMcGroogle Wed 12-Dec-18 18:08:00

Wowsers, this thread beggars belief. Trying to elaborately avoid tax is one ( unsavoury ) thing. But trying to avoid paying tax on money that will buy your child a privilege that few children, none of whom are any more worthy than any other child in this country, get is a whole new level of vulgar.

Just pay your dues. We have lots of money, pay all our taxes without trying to be clever and still have more than enough money left for a good, honest life. It's called being a good citizen. You should try it, you might rather enjoy it 🙂

GrasswillbeGreener Tue 12-Feb-19 20:45:56

Having read through information on fees-in-advance scheme at my son's school (not something we're remotely in a position to use), I think you may find that some such schemes do have an element of portability written into them - such that money can be withdrawn" from them in order to pay fees to a different school to the one originally intended. If you can use a set-up like that it might make an awful lot of sense.

SoTiredNeedHoliday Wed 06-Mar-19 09:12:19

If you pay in advance when already attending the schools also charge an 'inflation' gap charge so you still have to pay the difference between the fees when you paid the amount and the fees in the actual year that your child uses the education.

Also as you are receiving a benefit for placing the funds in the account surely you can't be allowed complete tax relief?

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