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School fees - any realistic options to mitigate costs ?

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Joined: Sun May 16, 2010 11:53 pm

School fees - any realistic options to mitigate costs ?

Postby 3point14 » Mon Sep 11, 2017 12:34 am

I have school fees for one child of around £20k per annum which will rise to over £30k and then there is university to consider. Child is 9 years old so another 9 years' fees to pay.

I own a few small companies 100% with wife as 10% shareholder in a couple of others (remaining 90% mine) generating a six figure income. Ongoing tax advice is to pay small salaries and take dividends with additional sums available via circa £500k director's loan account balance in my favour.

I understand fees are non tax deductible and a company paying would simply incur a benefit in kind charge.

There are no rich grandparents in the background though there are some living.

I read about using a company set up by grandparents with grandchildren as beneficiaries via a trust etc. but I am unsure of the viability and the saving ? Also wondering why my advice is that there is no viable means of reducing tax around school fees planning ?

If grandparents have a company which generates £50k per annum profit and pays 20% CT then £40k is left. As child only has £11500 allowance, then presumably only £11500 can be paid tax free ? Then you have the next £5k tax free dividends (current year) which brings that up to £16.5k and the remainder of the £40k could (theoretically) be paid as dividends with a 7.5% tax charge.

As parents already take out the maximum via the 7.5% tax on dividends, this would (potentially) save us the 25% additional charge between 32.5% and 7.5%

Then why put it into trust ? Presumably to start the 7 year PET clock ?

Costs of the trust ? initial and annual ?

What happens if we give the assets to the grandparents who then set it up for their grandchild (our child) ? Is this circular route fraught with danger ?

Any thoughts, corrections and answers much appreciated.

Posts: 174
Joined: Wed Feb 08, 2017 2:33 pm

Re: School fees - any realistic options to mitigate costs ?

Postby AnthonyR » Tue Sep 12, 2017 5:06 pm

Family trust planning can be put into place where the grandparents have reasonable levels of excess cash/income.

The benefit of this is that where income is generated in a trust and paid to or on behalf of trust beneficiaries it is taxed as their income and uses their personal allowances and basic rate band (not quite that straightforward, but that's the bottom line).

However, where settlements/trusts are made by parents for minor unmarried children then any income is taxed on the parents still.

In theory, if your parents had a company they could also give some of the shares to the grandchildren and pay them a dividend as well.

The problem, in your case, is that there is a substantial piece of anti-avoidance generally known as the associated operations rules, which say that if you give some value to your parents which results in the benefit landing in your children's hands then they will treat you as if you gave it directly to the children (and it's then taxed on you).

I'd suggest you discuss the full family setup with an adviser to see whether there is any scope to plan around the rules at all.
Anthony Rogers CTA
Fusion Partners LLP

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