Twins School Fees Case Study
How a conversation with our trust expert has enabled a director to save £140,000 over the next 14 years & helped her mother in her own inheritance tax planning
The Situation
We were approached by a business owner who was interested in making provisions for her two children, and to possibly fund private school. She owned 92% of the shares in her company, with 8% (in a different class) being owned by a former director. The client was keen to see if she was acting in the most tax-efficient manner & if more could be done.
The Client's Objectives
The client’s brief was clear:
- To ensure that her affairs were set up in a tax-efficient way to ensure she wasn’t working harder than necessary in order to provide for her family
- To prepare for her sons to go to private school
- To take a wider look at family affairs in order to make sure that no obvious tax savings were being missed
Measures for Success
The client’s measures for success where simple:
- A reduction in her overall tax burden & income tax
- An analysis of the inheritance tax implications for her mother & an improvement against the status quo
- Long-term projections for savings
Our Solution
When we talked about what options she had, it transpired that she had been talking with the former director about buying him out and that they had gotten close to agreeing a price and a timeframe. The client’s mother was also looking to do some Inheritance Tax planning of her own and had a desire to look after her grandchildren.
We talked to the grandmother about possibly setting up a Trust to benefit her grandchildren. She agreed and we set up the Trust, with cash being settled as Trust property.
When talking about possible investments for the Trust, it occurred to us that we could maybe use the cash to acquire the shares held by the firmer director f the client’s business. This is what happened and now the Trust is the owner of 8% of the shares in the company.
If dividends are paid in future in respect of those shares, then those dividends will be used to make payments either into Bare Trust bank accounts for the children, or to the school directly as a contributions towards school fees.
The Timing
After an initial conversation with the client and a further conversation with the client & her mother, adjustments were made quickly. Negotiations with the business partner were the only thing that was outside of our control but this was agreed quickly. The setup of the trust was completed within 4 weeks of the conclusion of these negotiations, giving the client’s children many years of benefits.
The Value to the Client
- The client has bought out her former director, finding a neat solution to a business problem & making her business easier to manage
- She has a trust to benefit her two sons & to help them along their journey in life. Whatever happens to her or her business, she has put in place measures to ensure that her sons are taken care of over the long-term
- She has helped her mother in her own inheritance tax planning, ensuring that a greater proportion of money goes to benefit her sons rather than to the tax man
- School fees for her sons will be roughly £5,000 each per annum for their primary school & £15,000 each per annum for their ideal public school. The cost of a private school education for her two sons would be £280,000. With our help, she will be saving over £140,000 over this period
- If her sons decide to go to university, the same savings will apply if she chooses to pay university tuition fees rather than leaving that to her sons & to the increasingly expensive student loans schemes
- A great weight has been lifted from her shoulders. She felt a need to send her boys (twins) to private school and yet the burden was significant & immediate. Furthermore, when they moved to a secondary school, this burden would increase by around three times. Our tax planning advice has enabled our client to move forwards without dread & to enjoy sending her sons to private school rather than resenting the effort