University Education and School Fees…..Only for those who planned financially?

This week’s vote in the House of Commons on the issue of further tertiary education costs will be critical to the future of many of our young people and their ability to attend university in the future. The cost of tuition has always been controversial and the proposals to increase student fees from around £3,000 per annum to £6,000 and even £9,000 per annum at some top education institutions.

At Churchouse Financial Planning Limited, we receive many enquiries each year from Clients, usually parents and grandparents, about the issues of planning both for school education costs and then for university costs thereafter for children and grandchildren. I am sure the number of these enquiries will increase, possibly based on the vote on Thursday, 09^th December 2010. Whichever way the result goes, I am sure that the issue will increase fears that education will rise in the future. Sadly, I believe that this is an issue in England that it not going to go away.

In addition to this potential rise, there is also the concern that the rate of inflation in School/education fees may be higher than the standard rate applied in the Consumer Price Index (CPI).

This raises the question about what can be done to ease this situation if you are thinking about helping your children or grandchildren. Clearly, some good financial planning may well go a long way to help the future of your loved ones education.

In financial planning, there are many ways that an investor can approach this topic and, as ever, early planning is part of the key in building sufficient funds to meet the future liability. There are a few steps to this process, and these are detailed below:

1. First of all, we maintain an education cost modeller to predict the total liability into the future, applying an assumed inflation rate into the future to predict the real cost, based on the anticipated education path in the future.
2. With this knowledge, it is then possible to project the anticipated capital to meet these fees and then roll these back to your current financial planning to look at the amounts that need to be invested to meet these education costs into the future.
3. This then leads to the way that these funds are invested, using any available tax wrappers where available, such as the ISA allowances of parents and grandparents. It should also be noted that the young people involved also have their own tax allowances, such as nil rate income tax allowance (currently £6,475 pa, tax year 2010/2011) and their own Capital Gains Tax (CGT) allowance (currently £10,100 in this tax year 2010/2011). Based on your needs and the circumstances, investments can be made in their name, whilst keeping control of the funds for their purpose. Clearly important!
4. Finally, some Clients like to insurance their liability to future education fees with Life Insurance to make sure that no education opportunities are lost, even in the event of death. Some chose to write this type of cover in Trust to place the proceeds outside their estate for inheritance tax.

There is a lot involved in this planning and we can go into detail with you when you enquire. We are all different and the needs of education costs will vary, dependent on where the student wants to go and when in the future. Therefore, this article should not be seen or used as individual advice.

Seek Independent Financial Advice (IFA) for your circumstances.

Churchouse Financial Planning Limited can be contacted in Guildford, Surrey on (01483) 578800.

Keith Churchouse, Chartered Financial Planner

Director of Churchouse Financial Planning Limited

Churchouse Financial Planning Limited is authorised and regulated by the Financial Services Authority. The Financial Services Authority does not regulate taxation advice.