£25K to invest for school fees

tidyfinance

You know, the kids in private education today aren't that different to the kids in state schools. OK you're bound to get the snobs who's 'mummys' and 'daddys' have got loads of money and they might think they are above the rest, but we haven't encountered them. Indeed, a lot of the parents we've met are no different to us. One guy, we discovered, lived on the same council estate as me when we were kids. OK he's got a few houses he rents out, which leads me to another point - We're fortunate enough to have a flat we rent, so if things went belly up we'd sell that. So we at least have a safety net.
My kids, like me, are grounded, streetwise kids. Our eldest still plays with his junior school mates and you know...they have said that if they could afford it they would have followed him to private education.
I'm not living a pipe dream mate, just want the best for my lad. And as for the other parents taking snide remarks - you're way off mark there. I guess some people (Cheggers for one) think all schools are like Eton/Harrow. WRONG! With respect, you sound as daft as your name sake on the telly.

Tim_L

Ignore the trolls!

It's probably too late for an offset mortgage, but it may very well be worth looking at some medium risk investments via an IFA which can return better than mortgage rates reasonably reliably. Commerical property bonds do seem to be attractive, and I'm looking at these for a similar purpose (in my case the question is whether to pay the mortgage off or take out an investment returning more than the mortgage, but I do need to finance school fees).

tidyfinance

Is a commercial property bond the same as a commercial property unit trust?
An option for me (cheers Dunstonh) would be to set up my ISA's for the early years, and then put a bit into the commercial property unit trust post April 2006.
What do you think?

dunstonh

tidyfinance wrote:

Is a commercial property bond the same as a commercial property unit trust?

rather than give you a yes or no. I will explain the difference as you have bascically asked is the car the same as petrol. Now just have to work out how to keep this simple but accurate....

A unit trust, ISA, Investment Trust, pension and bond are all tax wrappers. They are not investments in their own right. They are just containers for you to put your investments in.

Each one has it's own set of rules, charges and its own taxation styles. Generally the same investment funds are available with each of the tax wrappers. So a commercial property fund in a bond is the same as a commercial property fund in a pension or a unit trust. The only differences are the taxation and the wrapper rules and charges.

Which wrapper is best? Well, to think of that another way its a bit like saying which is best out of a bucket or a cup. You wouldnt want to drink tea from a bucket but then you wouldnt want to wash your car using a cup as the water holder. You use the one that is appropriate for the job.

Each tax wrapper will have pros and cons.

A pension has a defined maturity date (between age 55 and 75) and can only be taken as 25% tax free lump sum and the rest with an annuity. So, that tax wrapper clearly wouldnt be much use to you. You have quite correctly identified unit trust and bond as the two most likely to fit.

Now, both have slightly different tax rules on them which for basic rate tax payers would favour the unit trust. However, the charges on investment bonds investing in property funds are usually lower than the unit trust equivalent. Or perhaps I should say, can be cheaper as some bonds can be more expensive (do you buy your baked beans from Aldi, Tesco or Harrods type scenerio - same tin of beans but cost varies).

Which is best for you would depend on how you are going to purchase it. If you were going to do it yourself, you would probably look for a unit trust as its easier for a consumer to research. If you were going to do it with an IFA, either could come into play as an IFA could pick a provider with a high allocation rate and rebate some of the commission to ensure that there is no effective penalty for withdrawal after 3-4 years. This could result in lower charges than a DIY property fund in a unit trust.

I would like to think that all IFAs make the comparison each and every time and advise accordingly but I know, sadly, that its not the case in the real world. So, it would need a good IFA if you were to look at it with complete accuracy.

I am restricted very much in what I would want to say here because it steps into advice issues and I have already had my hands slapped once today by a board mod. I also realise that I can say so much on this issue but want to keep it easy and understandable and that is not always easy when there are lots of options or varients which can swing from one version to another. So, I will finish the bond vs unit trust comments for now and give you a chance to comment on whether you are likely to do it yourself and go with the unit trust (potentially) or go get advice and see if the bond works out cheaper.

Finally though, I will also add that there is a small proviso with commercial property funds that does need to be considered. Property funds may not be as liquid is other unit trust funds. If there is no cash in the fund, then withdrawals may be delayed to allow sale of a property to take place or for new funds to flow in to meet the withdrawals. In the small print, there is often wording to the effect that withdrawals over a certain amount may be held up if there is not enough cash in the fund. So, when picking property funds, spread it around with the providers as its "per fund" where the issue is, not your complete porfolio of funds. Some of the fund supermarkets offer 3-5 providers now. Currently, most are heavy with surplus cash as there is more money flowing in than there is property available to purchase. Oh, and one last thing... There are two main types of property fund. 1 -funds where the income comes from the rents and the assets are made of bricks and mortar. 2 - property funds that invest into property companies and own shares in them. number 1 is cautious risk, number 2 is high risk.

Oh dear.... so much for me keeping this short

in_my_wellies

All my children go to private school and we have cut corners, worked hard and scrimped and saved to keep them there but I can honestly say it was worth every penny. Someone told me and it has been correct that the fee will double during the seven years they are there. My eldests started at £4100 and finished at £7850, my second started at £4800 and finished at £7900 (different school), so, so far the advice I had was right.

Many parents collect children in smaller, oldish cars and many use the service buses. There is a thriving second hand uniform shop and I have never felt under any pressure to send them on expensive holidays.

Remember children can have accounts and they are not tax payers. There are rules and limits (but it's different for grandparents giving) and they can have an ISA in their name from age 16. We have used these for all our children, topping up with money when we can, knowing it is tax free. We didn't dip into it for my eldest son but have used it for his uni fees.

tidyfinance

Excellent post!
A woman after my own heart (even though I'm the dad).
The doubling of fees during the 7 years is a bit scary though. Better work my butt off at work and gain some promotions I reckon.

babesandbrats

in_my_wellies wrote:

All my children go to private school and we have cut corners, worked hard and scrimped and saved to keep them there but I can honestly say it was worth every penny. Someone told me and it has been correct that the fee will double during the seven years they are there. My eldests started at £4100 and finished at £7850, my second started at £4800 and finished at £7900 (different school), so, so far the advice I had was right.

Many parents collect children in smaller, oldish cars and many use the service buses. There is a thriving second hand uniform shop and I have never felt under any pressure to send them on expensive holidays.

I agree. Sending your children private is a lifestyle choice, it often means sacrificing other things but I would much rather my children had the best start in life than I have the latest model of car. My children mix with kids from both their own school and state schools - it has never been a problem. The class system is not 'on another level' - yes there are parents who are very rich but there are also parents like us, who get by. My kids have NEVER experienced any snide remarks etc - in fact i had a worse time myself at a state school by other kids who thought I was a snob

tidyfinance

Regarding my post #29, when I said 'another level' I mean that he will hopefully raise the bar and work harder in an environment that aims to get maximum potential out of its students.
I agree with your post entirely.

tidyfinance

Getting back to the main reason I started this thread.....I've just read that regarding ISA's from April, the amount that can be invested in a Maxi-ISA will fall from £7000 to £5000 and for a Mini cash ISA the amount will fall from £3000 to £1000!!!!
I was going to open up a few Mini cash ISA's in family names today. This has completely thrown me now. I've been on this site till all hours of the morning trying to sort out my options for school fees and now I read this!
'Tomstickland', 'Isasmurf' and 'dunstonh' what the heck is going on?

dunstonh

That information is now incorrect. GB had a change of heart (probably a form of spin, take something away and when you give it back, everyone thinks you are a good guy). It remains as it is this year until 2010.

Only main change is that property funds can be held in ISAs from April 2006.