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Case 1: School Fees Pension Plan

A small business owner with 2 children had projected fees of £325,000 to pay. The initial requirements were to make the payment of school fees manageable and secondly ensure that income in retirement met expectation. To achieve both seemed out of reach.

A consolidated school fees plan with a pension was recommended, to be funded by the business, resulting in a net effect of 47% tax relief on contributions and reducing income and corporation tax. A new school fees mortgage would become the vehicle for paying school fees, providing instant access to funds and solving any cash-flow problems. The accrued pension lump sum would pay the school fees and any outstanding mortgage at a suitable retirement age and has enabled school fees payment to be spread over a longer period.

A significant amount of higher rate income tax paid in the three previous years (and expected in the future) could be recovered by an investment scheme devised by our tax planning division. Existing investments and some new funding would also be consolidated into a discretionary portfolio to establish a more solid investment foundation. Additional life insurance, written in Trust to avoid any inheritance tax, was also recommended.

The pension component of the plan would fund the mortgage and school fees and an additional retirement income of approximately £45,000 per year (from a pension pot of £740,000) would be generated. The investment plan recommended by the tax planning division was predicted to realise approximately £100,000 tax free profit by 2025.

The school fees pension plan described is very flexible. Pension income can be balanced against affordability and payments adjusted depending on the pension performance and the future income situation.