Commenting on the news that Rachel Reeves is planning on delaying private school VAT fees until 2025, Kevin O’Shea, Director, Wealth Planning at RBC Wealth Management, said: “Families typically have a finite number of financial planning levers that can be pulled in order to meet additional expenditure, namely reducing other expenditure, increasing earnings, targeting higher returns – with the additional risk that comes with this –, looking to borrow and gifting from relatives.
The delay buys additional time to consider options, adjust budgets, realise gains and/or income more tax efficiently over multiple tax years, accumulate additional income and/or gains on investment, organise gifts from family members and consider debt.
As inflation has started to reduce, the prospect of lower costs of borrowing may make this a more attractive option in future and the additional time delay may provide another option to families.
Where additional costs are met from generous relatives, this delay will result in an additional year’s annual gift allowance – £3,000 per person gifting – free of Inheritance Tax that could add £12,000, assuming four grandparents, to the education pot. Grandparents looking to gift above this amount may wish to ignore the delay and continue with plans to gift as soon as possible to get the clock started on the gift from an Inheritance Tax perspective – for the gift to fall outside the Inheritance Taxable estate after 7 years.
Additional time may bring improved tax efficiency in drawing funds, e.g. from a pension or from a Family Investment Company, or realising gains, subject to Capital Gains Tax, over multiple tax years. In addition to this, the timing of these events can be important for cashflow management as taxable events taking place on 5 April 2025 will be payable by 31 January 2026 whereas taxable events taking place on 6 April 2025 will be payable by 31 January 2027.”
