Public school fees paid upfront

[UnlikelyFinancialGuru]

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.

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?

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

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

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.

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

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.

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

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.

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 !

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.

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.

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

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.

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.

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

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.

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

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.

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.

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!!

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.

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.

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

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.

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?