The cost of private schooling is slipping out of the reach of many of the top 1% of earners as fee inflation outpaces incomes by a factor of 10, according to research by Fleming Family & Partners Wealth Planning, an international wealth manager.
The soaring cost of school fees is driving a small number of wealthy parents to exploit tax breaks designed to boost investment in smaller companies.
According to the research, incomes of those earning between £100,000 and £499,999 per annum, have risen by an average of just 0.5% per annum over the last three years, from £167,387 in 2010/11 to £169,711 in 2013/14.
The average fees for private schools have increased by 4.4% per annum, from an average termly cost of £4,186 in 2010 to £4,765 in 2013, over the same three-year period.
The research found that private schooling is becoming prohibitively expensive and increasingly the preserve of overseas ultra-high-net-worth or those with existing family wealth.
According to the calculations given by FF&P Wealth Planning, a fee inflation of 4.4% per annum to privately educate two children, born two years apart, would cost on average £454,000 over the next 15 years while, a day school primary education and a boarding school secondary education for two children would cost closer to £700,000 for the 15 years.
Richard Bertin, managing director of FF&P Wealth Planning, comments: "The rising cost of school fees, together with low earnings growth among the demographic who would traditionally educate its children privately, is making proper financial planning more important than ever.
"With fees an increasing proportion of income, there is a growing need for families to look at their overall wealth, and consider the generational transfer of wealth and the effective use of tax reliefs.
"Spending a rising proportion of income on school fees means that families are likely to be giving up the opportunity to benefit from tax reliefs from pension savings and ISAs," Bertin added.
FF&P Wealth Planning research has explained that depending on an individual family’s financial circumstances, it could be beneficial to mortgage the house for school fees and then take advantage of the 45% tax relief on pension contributions.
The tax free lump sum from the pension can support repayment of the mortgage.
In a growing proportion of high-net-worth families advised by FF&P Wealth Planning, grandparents are setting aside capital to cover the cost of school fees.
Richard Bertin said: "From the perspective of overall family wealth, utilising the capital of grandparents is often far more tax efficient than parents paying school fees out of their income."