School Fees Trust

School Fees Trusts are an income tax efficient way of paying or contributing towards education costs as well as potentially mitigating Inheritance Tax (IHT) for the settlor.

Many educate their children privately and the cost of such education is often a significant financial burden. Grandparents or other friends or relatives are also often in a position to make gifts to other family members and like to do so to mitigate IHT.  Often these gifts are a welcome assistance for the payment of school fees.

Anyone, except the parents of the children being privately educated, can make a gift into a School Fees Trust. An amount up to the “nil rate band” for IHT can be put into a trust, tax free. Existing assets can also be transferred into the trust without incurring Capital Gains Tax (CGT) because a claim for holdover relief can be made to avoid the CGT on transfer.

The trust can pay the school fees from the arising income which, once distributed, can be treated as the income of the child for tax purposes. This often allows the child to recover the income tax paid by the trustees by using their personal income tax allowances. The tax repayments can be used by the child to contribute towards future school fees or maintenance costs.