A 53-year-old professional earning £155,000 gross per year. Their daughter attends an independent school which requires funding. University provision was also a priority. The estimated fees totalled £180,000.
1. Fund the completion of the daughter’s education
2. Reduce tax bills
3. Build an adequate pension to enable the client to retire at 60
As the client was over 50, our recommendation was to pay the next school fee by investing in a pension and taking the 25% cash lump sum immediately.
As a higher rate tax payer, this produced a saving of 67% of the fee. Future school fees would be paid in a similar manner.
Existing monthly savings plans and money allocated to pay the fees would be diverted into a private pension, attracting 40% Income Tax relief.
Additional lump sums would be added to the pension fund at strategic points to make it possible to pay future school fees out of the tax-free lump sum, also attracting 40% tax relief.
The last two years of university fees would be paid out from some of the income generated from the pension.
In total, the plan we recommended was £45,000 cheaper than the client’s current arrangements and an additional pension pot of approximately £400,000 would be created.
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Disclaimer
The information within this article was correct at the time of publishing, but laws and tax rules are subject to change. Your circumstances and where you live in the UK may also have an impact on your tax treatment.
To learn about the government’s most recently-announced changes, please read our latest budget roundup: 2024 Autumn Budget Update
