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  • FIRST POST
    • YBR
    • By YBR 11th Jan 18, 7:20 PM
    • 2Posts
    • 0Thanks
    YBR
    Options to save/invest lump-sum for education fees
    • #1
    • 11th Jan 18, 7:20 PM
    Options to save/invest lump-sum for education fees 11th Jan 18 at 7:20 PM
    A relative has indicated that they will give a sum around £75000 to help with our kids education fees. I'm thankful and delighted but don't know what to do with it until required, and what tax implications I need to think about.

    I want to save/invest it such that there is minimal risk of loosing the capital and a reasonable change of protecting the sum from inflation. I can lock it up for 5 years.
    I'd prefer to put it in joint names with my husband so he has equal access should the worst happen.

    What options are there that I should investigate?
    What types of tax might I be liable for?
Page 1
    • ValiantSon
    • By ValiantSon 12th Jan 18, 3:22 AM
    • 198 Posts
    • 188 Thanks
    ValiantSon
    • #2
    • 12th Jan 18, 3:22 AM
    • #2
    • 12th Jan 18, 3:22 AM
    Over five years only you are probably best sticking to savings rather than investments. I'd suggest putting it in a fixed rate bond for one year and then reviewing the rates for a new bond in 12 months time (and so on). Rates are not particularly high at the moment so taking a longer fixed term probably isn't worth it and considering investments over just five years is extremely risky.

    By the way, have you looked at school fees? I assume that this is what you are thinking of. £75,000 will not be enough to fund even one child through seven years at even the cheapest day school. At current fee rates (and they go up every year) the cost would be over £80,000 for one.
    • YBR
    • By YBR 12th Jan 18, 8:19 AM
    • 2 Posts
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    YBR
    • #3
    • 12th Jan 18, 8:19 AM
    • #3
    • 12th Jan 18, 8:19 AM
    In the most local Independent schools its now £12000 per pupil per year, but you have assumed that we can't afford to contribute anything ourselves, which is not the case.
    Many thanks for your advice.
    Last edited by YBR; 12-01-2018 at 8:26 AM.
    • Malthusian
    • By Malthusian 12th Jan 18, 9:52 AM
    • 3,571 Posts
    • 5,499 Thanks
    Malthusian
    • #4
    • 12th Jan 18, 9:52 AM
    • #4
    • 12th Jan 18, 9:52 AM
    I want to save/invest it such that there is minimal risk of loosing the capital and a reasonable change of protecting the sum from inflation.
    These things contradict each other.

    If you have the resources to pay school fees yourself then it may not be as risky to invest the money. If we had a market crash in five years' time, would you be able to pay the school fees from your own resources until markets recovered, or would the kids just have to settle for the local comp?

    *edit*

    Putting it another way - you have at least two kids, so as things stand, your relative's gift will pay for three years of schooling.

    School fees can be expected to rise by more than inflation, so if you left the money in cash for five years, it could easily reduce the real value of that £75,000 by a quarter, so by the time they start it will only pay for two and a bit years.

    You didn't say what age you want them to start private schooling, but if it's say year 9, that means you will be funding at least half of their fees yourself.

    I can't see any reason why the relative's money couldn't be used for the second half rather than the first half, which means the timeframe for this investment is longer than five years.

    If you have the resources to pay for private school fees with only a £75,000 grant from the relative, it does seem to me that you have more to lose from not allowing the money to keep pace with inflation than from risking it in the stockmarket.

    (If you can't guarantee to keep them in the private school for the whole of their secondary education, it would be better to forget about private school entirely and earmark the money for uni fees / house deposit / something else, rather than go through the disruption / stress of changing school halfway through.)

    I'd prefer to put it in joint names with my husband so he has equal access should the worst happen.
    Originally posted by YBR
    This shouldn't be necessary and if he is in a higher tax bracket than you it may be costly.

    If you haven't both made Wills to ensure that if the worst happens your assets will pass to the survivor, you should.

    Have you used your ISA allowances in the current tax year? If not, £40,000 should be wrapped in ISAs for each of you - whether you choose to leave it in cash or invest it.

    If you are in the same tax bracket, then once you have used your ISA allowances, joint names may be sensible for convenience and to maximise your interest and/or dividend allowances.
    Last edited by Malthusian; 12-01-2018 at 10:02 AM.
    • Tom99
    • By Tom99 12th Jan 18, 11:31 AM
    • 1,012 Posts
    • 615 Thanks
    Tom99
    • #5
    • 12th Jan 18, 11:31 AM
    • #5
    • 12th Jan 18, 11:31 AM
    The NS&I 3yr at 2.2% is not a bad rate and you can also cash in early with 90 days loss of interest.
    • OldMusicGuy
    • By OldMusicGuy 12th Jan 18, 12:02 PM
    • 254 Posts
    • 478 Thanks
    OldMusicGuy
    • #6
    • 12th Jan 18, 12:02 PM
    • #6
    • 12th Jan 18, 12:02 PM
    I want to save/invest it such that there is minimal risk of loosing the capital and a reasonable change of protecting the sum from inflation. I can lock it up for 5 years.
    Originally posted by YBR
    This is not possible. You cannot get inflation-proofed investments without risking them in the stock market which over time returns above inflation but you will have to decide what the risk of a market drop will be in the next five years. IMO this is more than "minimal" at present, but who knows?

    To avoid risk you need to look at bonds like Tom99 suggested. These are safe, and NS&I offers 2.2% over 3 years, Charter Bank offers 2.31% over 5 years. That may be close to inflation levels if the Government can meet its 2% target, but if there is a change of government in the next 5 years, who knows.

    If you go down this route, interest income is subject to income tax. If the bond is in your joint names, the interest is split between you both. Basic rate taxpayers get a £1000 tax free annual allowance for interest income, but this drops to £500 if you are higher rate and to 0 if you are additional rate.
    • jimjames
    • By jimjames 12th Jan 18, 12:29 PM
    • 12,332 Posts
    • 10,915 Thanks
    jimjames
    • #7
    • 12th Jan 18, 12:29 PM
    • #7
    • 12th Jan 18, 12:29 PM
    You seem to be making the assumption that all the money will be needed in 5 years. Surely with school fees they are paid over a period of maybe 10 years? So if that's the case then the investment period could be up to 15 years.

    There is no need for all the money to be in the same place so I'd look to have part of it as cash deposits to cover the initial period and the remainder as investments to beat inflation for the later period of time.
    Remember the saying: if it looks too good to be true it almost certainly is.
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