School fees planning: how to fund education without compromising your plans

Why planning ahead matters

Providing your child or grandchild with a private education can be one of the most meaningful financial commitments you make for your family. For many, it's about giving the next generation opportunities, choices and a strong foundation for the future.

However, the challenge is not simply finding the money to pay school fees. Since VAT at 20% was introduced on private school fees from January 2025, rising costs and education expenses can continue for well over a decade and it has become increasingly important to think beyond the next term's bill.

School fees can place significant demands on family finances if they are approached year by year. Even if you can comfortably afford the fees, relying solely on income or cash reserves can create pressure elsewhere, particularly if fees rise faster than expected or you have more than one child at private school at the same time.

The full cost of education often extends beyond the headline fee. Uniforms, school trips, clubs, transport, technology and boarding can all add up and should be factored into your long-term planning.

Planning ahead gives you more options. If your children or grandchildren are still young, investing over time may help spread the cost. If you’re already paying fees, cash flow planning can help you understand the impact on your other priorities, such as retirement, gifting, helping family members onto the property ladder or future care needs.

It's also worth considering how fees will continue to be funded if your circumstances change unexpectedly. Protection planning can give you reassurance that education plans remain achievable should a key earner die during a child's education.

Above all, school fees should not be viewed in isolation. They need to be considered alongside your wider financial priorities to ensure they remain affordable and sustainable over the long term.

What are your options for funding school fees?

There’s no single best way to fund school fees. The right approach depends on your income, assets, timescales, tax position and how much flexibility you want to retain. In practice, many families use a combination of methods.

Paying school fees from income

Paying school fees directly from your income is the simplest option. This can work well where income comfortably exceeds day-to-day spending and long-term financial goals remain on track.

However, school fees are usually paid from income that has already been taxed, which can increase the real cost for higher earners.

Cash flow planning can help determine whether paying fees from income is sustainable, particularly if costs continue to rise over time.

Using existing family assets

You might fund school fees using investment income, savings, bonuses, property income or capital from existing assets. This can work well, but it should be done with a clear understanding of the wider consequences.

For example, drawing heavily on investments could affect future growth. Using cash reserves may reduce your financial safety net, while selling assets could trigger tax implications. A joined-up plan can help you determine the most appropriate source of funds.

Building an investment portfolio for future fees

Where there is time before fees are due, building an investment portfolio can help you prepare in advance. You might set aside a lump sum, make regular contributions or both.

The benefit of investing is that it gives your money the potential to grow over time. This can be particularly useful where school fees are several years away. However, investments can fall as well as rise, so the level of risk needs to match the timescale and purpose of the money.

As the first fee payment gets closer, it may be appropriate to reduce investment risk or hold more in cash to avoid being forced to sell investments at an unfavourable time.

Using ISAs and other tax-efficient allowances

You may be able to use your tax-efficient allowances as part of your wider planning. Adult ISAs can be useful because income and gains are sheltered from tax and you keep control of the money and decide when to use it.

Junior ISAs can also play a role in saving for a child's future, although they are not usually suitable for paying school fees directly because money cannot normally be accessed until the child turns 18. They may be more appropriate for university costs, a first home or longer-term financial support.

The key is understanding who owns the money, when it can be accessed and whether it provides enough flexibility for your objectives.

Bare trusts and designated investments

Bare trusts can sometimes be used where money is being set aside for your child or grandchild. They can provide a clearer structure than simply holding money informally and may allow funds to be used for the child's benefit before adulthood.

However, control and tax treatment need careful thought. Where parents fund a bare trust, any income generated may still be taxed on the parent rather than the child in some circumstances. Different considerations can apply where grandparents or other family members make contributions.

It’s worth remembering that once your child or grandchild turns 18, they’re usually entitled to take control of assets held within a bare trust. If you’d prefer to keep more control, other options may suit you better.

With a designated account, investments are earmarked for a particular child but remain yours. This can give you more control, although any tax is usually payable by you.

More complex wealth structures

For larger sums, or where several generations are involved, other trusts and other family wealth structures, such as a family investment company, may be considered. These can help you think about how your wealth is used, who benefits and when.

Trusts can be useful, particularly where there is a desire to support education while maintaining a degree of control. They can also form part of wider estate planning. However, they come with legal, tax and administrative responsibilities, so professional advice is essential before deciding whether they are appropriate.

How grandparents can help

If you’re a grandparent, you may be keen to help with school fees, especially where education is a shared family priority. This can be a meaningful way to support grandchildren during their lifetime, rather than leaving all wealth to be passed on through inheritance.

You could pay fees directly to the school, gift money to your child, or invest for your grandchildren over time, building a fund that can be used for education or other future needs.

If you’re a grandparent, it’s important to think about your own long-term financial security first, including maintaining your lifestyle, meeting future care costs and retaining flexibility for unexpected expenses.

There may also be wider tax considerations. Regular gifts from surplus income may help reduce inheritance tax (see below).

When structured appropriately, grandparent support can reduce pressure on parents, benefit grandchildren and form part of a wider intergenerational wealth planning strategy.

Can helping with school fees reduce inheritance tax?

School fees can sometimes form part of wider inheritance tax (IHT) planning, particularly where grandparents or other family members have surplus income or assets they would like to use to support the next generation.

For example, regular contributions towards school fees may reduce the value of your estate over time. In some cases, gifts made from surplus income may fall outside the estate for IHT purposes, provided they meet the relevant conditions. To qualify, gifts need to be made regularly from your income (not savings), form part of your normal spending and leave you enough to maintain your usual standard of living. 

Keeping clear records is important, as your executors may need to show this later. Larger lifetime gifts made directly to individuals may also be considered. These are generally potentially exempt transfers and can fall outside your estate for IHT purposes if you survive for seven years from the date of the gift.

However, IHT should not be the sole reason for helping with school fees. The starting point should always be what you want to achieve for your family and whether the support is affordable, sustainable and appropriate for everyone involved.

It’s also important not to give away too much too soon. A gift that creates tax advantages but leaves you short of money later may not lead to the right outcome. Good planning balances generosity with long-term financial security.

How Canaccord Wealth can help

A Wealth Planner can help you understand the true cost of education; model future fee increases and assess the impact on your wider financial position. This can help you decide whether fees should be funded from income, investments, family support or a combination of different sources.

Planning can also make family conversations easier. Parents and grandparents may all want to help, but they may have different priorities, timescales and financial circumstances. Bringing these discussions together can make it easier to create a plan that supports the child's education without placing unnecessary pressure on anyone else's future.

At Canaccord Wealth, we help you look at the bigger picture, considering not only how school fees will be paid, but how those decisions fit alongside long-term goals, family financial security and the legacy you want to create.