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Case 3: Tax Planning

A couple with 2 children were looking to plan the private education for their two children starting in about 5 year’s time. A projected total school bill, including University, was a daunting £460,000.

The husband was the sole income provider and was earning £55,000 per annum with other benefits. Their house was worth approximately £325,000 with a small outstanding mortgage of £50,000.

After discussion it was agreed that the financial goals were to make school fees more manageable and tax efficient.

tgage, a single sum would be acquired for investment. As other investments were in place a sum of £100,000 would be required. There was also £15,000 worth of loans outstanding which could be paid off by increasing the mortgage further, which would free up income to direct at school fees if necessary.

A cash deposit fund of £20,000 would be kept by for early years, a full quota of ISA investments (£14,400 in both names) deployed and the balance invested in unit trusts. As the risk profile was on the conservative side, a low to balanced risk mixed asset fund was selected. Similarly some guaranteed return funds were selected for unit trusts. Unit trusts funds’ profits are subject to Capital Gains Tax. The double tax-free allowance of nearly £20,000 per annum meant the likelihood was minimal.

The husband already had a number of pension schemes. An additional personal pension was recommended to create a total cash lump sum large enough to pay off any outstanding mortgage in 25 years time. Contributions made to the pension fund would be supplemented by an additional 67% of tax paid as he was a higher rate tax payer. A modest additional monthly payment of £350 would enable the pension pot to realise a predicted value of over £600,000.

Three different tax-saving mechanisms made this plan extremely efficient and the school fees manageable.