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Don’t get caught out by school fee tax avoidance schemes

| Nicholas Smith | 5 June 2023

Often in life, if something seems too good to be true, it is. When it comes to school fee tax avoidance schemes, this old saying is correct.

It’s been highlighted that a number of companies are offering schemes that promote dubious practices to circumvent tax rules and uncover savings to pay for private school tuition.

These schemes do not work, and at their worst are actively promoting tax evasion.

The schemes

Offered by a range of promoters, the schemes involve wealthy parents gifting valuable assets, such as shares, to their children, allowing them to be taxed at a lower rate, resulting in significant tax savings - the idea is these savings can be used to pay for private school fees.

The promoters of these schemes boast “huge annual savings” and claim that they have “special structures” to ensure tax compliance.

The rules

Whilst the schemes may sound attractive to parents, there is a rule in the Income Tax Act 2005 stopping exactly the behaviour they promote, meaning those who choose to use these schemes are breaking the law.

The guidance states that parents directly gifting valuable shares to their children or indirectly gifting using reciprocal arrangements do not comply with the rules.

There are exceptions that are permissible, including grandparents giving valuable shares to a child and declaring a trust. But, crucially, these shares can’t have been gifted or given to the grandparents at a reduced rate by the parents as that would classify as an indirect settlement under the rule.

The cost

Parents who get caught up in these schemes are taking a massive risk. If challenged by HMRC, they will not only need to pay the avoided tax back, plus interest, they may also face a fine on top.

Promoters offering the scheme may also be liable to huge fines from HMRC if investigations find any wrongdoing.

There is also clearly a cost in lost tax revenue also, as inevitably HMRC will not catch every single use of the schemes.

Advice for parents

For parents with children at private schools, it is easy to see why promoters offering a way to use tax schemes to save money to use towards fees are attractive. However, it is important not to get caught on the wrong side of the law by using dodgy schemes that are effectively promoting tax evasion.

To avoid being caught out, always use a reputable advisor to help you with your personal tax. At Duncan & Toplis, our trusted private client team of personal tax advisers provide a bespoke service with the objective of improving your financial position.

Whether you’re looking for tax services that complement our accountancy and business advisory offering or a standalone service, you will benefit from a team that is efficient, reliable, and appropriately qualified. Get in touch with our team.


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