Balancing School Fees, Retirement, and Family: How to Plan Tax-Efficiently While You’re Earning at Your Peak

SAs are one of the simplest and most flexible ways to invest for education costs. You can save up to £20,000 per adult per tax year (2024/25), and all growth and withdrawals are free from income and capital gains tax.

If both parents maximise their ISA allowances from a child’s birth and achieve 5% net annual growth, the pot could grow to around £585,000 by the time the child is 11 years old (illustrative only).

ISAs also provide flexibility. Withdrawals can be timed to coincide with term dates, and if education costs end up being lower than expected, the funds remain accessible for other goals such as mortgage reduction or retirement savings.

*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 you to invest lump sums or regular contributions in a tax-deferred structure. During the life of the bond, returns are not immediately subject to income or capital gains tax, which can make them effective for long-term planning.

You can withdraw up to 5% of your original investment each year for 20 years without an immediate tax charge, and any unused allowance can roll forward. This can align well with paying school fees in instalments, while leaving the capital invested.

For higher earners approaching retirement, Bonds can also help manage future income levels by deferring tax to years when you may be in a lower bracket.

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.

Unit Trusts and GIAs offer flexibility and access to a wide range of assets including shares, bonds, and property. Once you have used your ISA allowances, these accounts can be useful for medium- to long-term investing.

Investors currently benefit from a £500 dividend allowance and a £3,000 capital gains allowance (2024/25). While gains and income are taxable, these accounts allow you to manage when and how you realise profits, helping you to plan tax efficiently.

For high-earning families, this can provide a balance between growth, liquidity, and control over timing withdrawals for school fees or university costs.

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.

Families often help across generations, and the £3,000 annual gifting allowance can be a useful way for grandparents to contribute toward school fees. Couples can combine their allowances to gift up to £6,000 per year tax-free.

Larger gifts may also be exempt from inheritance tax (IHT) if the donor survives seven years, or if they are made from regular surplus income.

Parents with sufficient income can also pay directly for education costs under the “Dispositions for the maintenance of children” rules, which means these payments are not considered transfers for IHT purposes.

A disposition is exempt if it is:

– 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.

Private schools offer a range of scholarships and means-tested bursaries. Approximately one-third of pupils in private education receive some level of financial assistance.³

Bursaries are awarded based on financial need, while scholarships recognise academic, sporting, or artistic achievement. Even partial awards can reduce the overall cost of education and ease pressure on family finances.

³ ISC School Fee Assistance, April 2023

If you have accumulated savings or a bonus, some schools offer discounts for paying fees in advance. The discount varies by school and the number of years paid upfront.

However, compare the potential saving with what that capital could earn if invested instead. Retaining flexibility and liquidity is often more valuable than a modest discount, especially when you are balancing several major financial goals.