One of the many problems with having children is the cost of school fees and that the cost comes out of your taxed income. However, all individuals including children are entitled to claim a personal allowance of up to £11,000 (2015/16) which they can use to reduce the amount of income on which they pay tax.
If a parent provides their child with an investment as an income, the Taxman will tax the income as if it belongs to the parent. So with simple planning, grandparents or any other relatives of the child should make the investment in the child’s name as the income will go to the child’s name for tax purposes. This investment will then generate income to meet future school fees as well as utilise the tax-free allowances.
Another way to give a child an income and use up their personal allowances for future school fees is for their grandparents or any relative to transfer capital to them in order to purchase a rental property. This could be held in a trust with the parent as the trustee. Once the property is held in a trust, the trustees can use the rents to pay school fees.