Private school fees have rocketed in recent years. The cost is climbing so fast that you'd have to fork out an extra £100,000 to privately educate a child starting school in two years' time than one starting school today.
In the past 12 months, parents have shelled out an additional £27m on paid-for schools as fees have inflated by 3.9 per cent, bringing the total spend to £726m a year. However, many parents find that their wages are not keeping up with school fees inflation.
The cost of private education has become so enormous that parents with an income under £100,000 a year can no longer afford it, according to Doug Bonnar, managing director at school fees expert SFIA Group. But, despite it being beyond the means of the 99 per cent of UK households with five -figure salaries, some 8 per cent of children are educated privately.
Parents of around a third of pupils have resorted to accepting help with their fees, according to the Independent Schools Council. This year its member schools are providing more than £620m in assistance annually, an increase of almost £19m on last year.
Whether your income means you can only just stretch to private education for your kids, or you're so comfortable financially that you do not to have to worry about it, planning the costs ahead of time can save you money and help you work out exactly what you'll have to set aside.
First work out how much you'll need to cover the costs - and over how long. The price of private school education has been rising at more than twice the rate of inflation - meaning as your kids get older, in real terms, their school fees get more expensive. Mr Bonnar suggests treating your kids' school fees like a mortgage, as it's not unusual for the total cost per child to exceed £250,000 - similar to the cost of the average UK home.
Costs of sending two children to private school
| Year | Billy | Emily | Total |
|---|---|---|---|
| 2013-14 | £9,000 | 0 | £9,000 |
| 2014-15 | £9,450 | 0 | £9,450 |
| 2015-16 | £11,823 | £9,924 | £21,747 |
| 2016-17 | £13,233 | £10,419 | £23,650 |
| 2017-18 | £15,279 | £13,035 | £28,314 |
| 2018-19 | £16,044 | £14,589 | £30,633 |
| 2019-20 | £16,845 | £16,845 | £33,690 |
| 2020-21 | £17,688 | £17,688 | £35,375 |
| 2021-22 | £20,700 | £28,920 | £49,620 |
| 2022-23 | £21,735 | £30,366 | 52,101 |
| 2023-24 | £22,821 | £31,887 | £54,706 |
| 2024-25 | £23,961 | £33,480 | £57,441 |
| 2025-26 | £25,161 | £35,154 | £60,315 |
| 2027-28 | £0 | £36,912 | £36,912 |
| 2028-29 | £0 | £38,757 | £38,757 |
| £223,736 | £317,974 | £541,710 |
Source: SFIA Council
*Based on real prices for Crosfields School, for Queen Anne's School, and assuming 5 per cent price rise per year.
Patrick Connolly, head of communications at AWD Chase De Vere, says: "First, find out how much the school you are interested in charges now. Then estimate how much that figure is likely to have risen by the time your child is due to start - right through until their final year of school. This gives you an overall target sum to aim at. Then you need to work out how to get there."
If you're saving over a period of less than five years or you want to avoid investment risk, you will have to stick with cash savings. Search around for competitive rates and make sure you use your tax-free cash individual savings account (Isa) limit (£11,520 for a couple for 2013-14).
But if you have a longer timescale and are comfortable with investment risk, the best approach is a combination of different assets, including equities, fixed interest and property. A diversified portfolio should provide returns that beat cash.
A tax-efficient trick to save you hundreds of thousands of pounds
If you've got a bit of extra breathing room for some racier investment risk, you could consider investing in an Enterprise Investment Scheme (EIS). These allow you to invest in unlisted companies with the added incentive of a stack of impressive tax breaks - including 30 per cent instant income tax relief on contributions and no capital gains tax if you hold the shares for three years or longer.
You buy shares directly in EIS qualifying companies - they must be unquoted or listed on the Alternative Investment Market (Aim) or PLUS markets. With some funds you can do it yourself - but some EIS providers will ask you to fill in a form that declares that you are a high-net-worth or sophisticated investor.
However, it's a complicated business, so it might be better to use an intermediary who can help you pick a selection of shares that suit your needs. EISs are very high risk, but there are products designed specifically to minimise the possibility of losses that invest in stocks that provide investors with regular income - such as renewable energy and TV & film companies.
Mr Bonnar recommends Octopus 13, Shelley Media 8 and Foresight Solar for parents investing to pay for school fees. The minimum investment can be as low as £5,000 but can sometimes be as high as £25,000. And the fees are weighty at around 5 per cent - but the potential returns and tax savings are very attractive.
This example shows how you could save £120,000 on £541,710-worth of school fees for two children by reinvesting £100,000 every four years in an EIS that's designed to regrow your capital in this period. The savings come from the income tax relief, which is used to pay school fees. The example assumes that your EIS investments grow your capital back to original value in the period - but there is a risk that they may not.
| Academic Year | Fees to pay | 30% tax relief spread over four years | Fees still left to pay | How much, and when you need to invest | |
|---|---|---|---|---|---|
| Sep 2013 | £9,000 | £7,500 | £1,500 | Initial Investment | £100,000 |
| Sep 2014 | £9,450 | £7,500 | £1,950 | ||
| Sep 2015 | £21,747 | £7,500 | £14,247 | ||
| Sep 2016 | £23,650 | £7,500 | £16,150 | ||
| Sep 2017 | £28,315 | £7,500 | £20,815 | Reinvest original sum | £100,000 |
| Sep 2018 | £30,631 | £7,500 | £23,131 | ||
| Sep 2019 | £33,690 | £7,500 | £26,190 | ||
| Sep 2020 | £35,375 | £7,500 | £27,875 | ||
| Sep 2021 | £49,620 | £7,500 | £42,120 | Reinvest original sum | £100,000 |
| Sep 2022 | £52,101 | £7,500 | £44,601 | ||
| Sep 2023 | £54,706 | £7,500 | £47,206 | ||
| Sep 2024 | £57,442 | £7,500 | £49,942 | ||
| Sep 2025 | £60,314 | £10,000 | £50,314 | Reinvest original sum | £100,000 |
| Sep 2026 | £36,912 | £10,000 | £26,912 | ||
| Sep 2027 | £38,757 | £10,000 | £28,757 | ||
| Encash | £100,000 | ||||
| Total fees | £541,710 | £120,000 | £421,710 | Capital returned | £100,000 |
| Summary | |
|---|---|
| Total fees | £541,710 |
| Capital invested | £100,000 |
| Total fees paid by tax relief | £120,000 |
| Fees paid through income | £421,710 |
| Fees paid from capital | £0 |
| Tax relief remaining | £0 |
| Savings on fees | £120,000 |
| Capital returned | £100,000 |
| Overall cost of fees | £421,710 |
