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.
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