Funding Private School Fees When Your Wealth Is in Your Business
Introduction
For many entrepreneurs, the business isn’t just a livelihood – it’s a life’s work. Yet with most wealth tied up in business assets, balancing company success with personal goals like your children’s education requires planning and diversification.
Private school enrolment is at a record 556,551 pupils across 1,411 ISC schools, the highest since 1974.¹ Parents seek the smaller classes, resources, and opportunities independent schools provide, but costs are rising fast.
Average day fees stand at £23,925 per year, and boarding at £42,459.² From January 2025, the addition of 20 % VAT could raise these to £28,710 and £50,951 respectively – around £460,000–£815,000 per child across a full education.
1, 2 ISC Census and Annual Report, January 2024
At a glance
- Private-school costs can exceed £800k per child.
- Extracting business wealth efficiently can fund education and personal goals.
- ISAs, Investment Bonds and GIAs help diversify wealth outside the business.
- Early, structured investing smooths cash flow and supports succession plans.
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Over 70 % of small-business owners have most of their wealth tied to their company. Planning when and how to draw funds – through salary, dividends, or an eventual sale – is key to meeting family goals tax-efficiently.
Assuming school-fee inflation of 3.5 % a year, parents could face roughly £460k in day-pupil or £815k in boarding fees per child. The earlier you plan, the more efficiently you can integrate these costs with business-cash-flow and exit timelines.
Start Early and Optimise for Tax Efficiency
Entrepreneurs often reinvest profits, but setting aside personal savings builds resilience and liquidity. Regular investing in tax-advantaged wrappers such as ISAs or Investment Bonds allows you to fund education independently of trading performance or a future sale.
Key tax-efficient solutions
An ISA provides simple, tax-free growth separate from your company finances. Each adult can invest £20,000 per year (2024/25), free from income or capital-gains tax.
If both parents maximise their allowances from a child’s birth and achieve 5 % net growth, savings could reach £585,000 by age 11 (example only). Withdrawals are tax-free and flexible – useful during variable business income years or post-sale liquidity.
*These figures are examples only and they are not guaranteed – they are not minimum or maximum amounts. What you get back depends on how your investment grows and the tax treatment of the investment.
The value of an ISA with St. James’s Place will be directly linked to the performance of the funds selected and may fall as well as rise. You may get back less than you invested.
The favourable tax treatment of ISAs may be subject to changes in legislation in the future.
Investment Bonds allow business owners to invest lump sums or sale proceeds tax-deferred, drawing up to 5 % a year of the original investment for 20 years. Unused allowances roll forward, creating flexibility for term or annual fees.
Bonds can also be held in trust, supporting long-term estate and succession objectives.
The value of an investment with St. James’s Place will be directly linked to the performance of the funds you select and the value can therefore go down as well as up. You may get back less than you invested.
The levels and bases of taxation, and reliefs from taxation, can change at any time. The value of any tax relief depends on individual circumstances.
Please note that if the withdrawals taken exceed the growth of the bond, the capital will be eroded.
Once ISA allowances are used or you have larger sums (e.g. dividends, sale proceeds), Unit Trusts or GIAs provide access to diversified investments such as equities, bonds and property.
They benefit from a £500 dividend allowance and £3,000 capital-gains allowance (2024/25). Though taxable, they offer liquidity and flexibility for medium-term education costs while diversifying wealth beyond the business.
The value of an investment with St. James’s Place will be directly linked to the performance of the funds you select and the value can therefore go down as well as up. You may get back less than you invested.
The levels and bases of taxation, and reliefs from taxation, can change at any time. The value of any tax relief depends on individual circumstances.
Business owners can also use personal income to help fund education tax-efficiently. Each person may gift £3,000 per year free from inheritance tax (IHT), or £6,000 per couple. Larger gifts can qualify if the donor survives seven years or pays from surplus income.
Regular education payments may also qualify under ‘Dispositions for the maintenance of children’ rules*, avoiding IHT.
A disposition is exempt if made:
– in favour of a child of either party to a marriage or civil partnership, and
– for that child’s maintenance or education before age 18 or while in full-time education.
The levels and bases of taxation, and reliefs from taxation, can change at any time. The value of any tax relief depends on individual circumstances.
***Further criteria applies within the HMRC IHT Manual IHTM04175 which is subject to change.
Roughly one-third of independent-school pupils receive fee assistance.³ Means-tested bursaries and merit-based scholarships can reduce overall cost – worth exploring early, particularly if your income fluctuates between financial years or business cycles.
3 ISC School Fee Assistance, April 2023
If you’ve realised liquidity – for instance, after selling shares or property – some schools offer discounts for paying fees upfront. Compare the discount rate to potential investment returns before tying up capital.
Maintaining a buffer for business or personal contingencies may offer greater long-term value than prepayment.
Should you require more information or have particular questions, we invite you to contact us at your convenience.
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Nauman Gondal
Chief Executive Officer
