Paying school fees through offshore trusts

Private school fees can be a significant expenditure to your net salary and with the threat from a Labour Government to abolish the charity status of them, it could mean an additional rise in fees of 20% to cover the cost.

Many UK schools are highly sought after by foreign nationals and payment for fees will be coming from an offshore company or bank account, based on where their parents live. This can be used to your advantage when looking at ways to pay your school fees that would soften the impact on your take-home salary, especially if you own your own company.

 

Option one

Consider opening an offshore company in a country known for its low tax. You’ll then need to choose for the invoice for school fees to be sent to the new company. From here, you’ll pay the school fees direct from the company as an expense.

However, this option isn’t as clear cut when it comes to HMRC and how they would perceive paying school fees in this way, even though your company books would be filed in the country the offshore company was based in.

 

Option two

This would be our recommended route and follows a similar route to option one but with a slight difference at the end.

You’ll need to already have or set up an offshore company (destination to be determined) that is at least 76% owned by an offshore trust. As part of the trust, you’ll need your children, or grandchildren to be beneficiaries.

You’ll then choose to pay the trust a dividend, for example, £50,000. This money can then be used by the trust to pay the school fees and will not fall foul to any rules or laws that HMRC have currently set.

If you choose to set up your offshore company in a country known for its low tax on both company profits and income tax, you won’t pay any tax on the £50,000 and won’t be taxed on the money in the UK if it is used for school fees.

 

In both of these scenarios, the devil is in the detail so to speak and it is absolutely essential that structures are correctly set up and that the company accounts accurately.

If you’d like to explore the options open to you when it comes to paying school fees, please contact the Turner Little team who will be able to discuss the options open to you.