In early December we invited Neil Ritchie and his colleague, Graham Scott, both from Murray Beith Murray, to deliver a seminar on tax efficient structures for cash extraction and the disposal of owner managed businesses. Here, we have asked Neil to share a further tax planning idea.

20% Discount on Education Costs – Sound Good?

Few of us need to be reminded that times are tough, so I imagine the prospect of trimming a healthy 20% off the annual cost of your children’s private school education will be of interest. For those of you with your own company then you may want to read on to find out how to make this prospect a reality.

The most convenient scenario is a family company where a grandparent can transfer one of their shares in the family business into a trust. That share is changed to become a “B” share and a dividend is paid to the trust, which then pays the school fees of the grandchild.

If the parent had received a dividend of £12,000 to pay the fees, they would also pay £3,000 of higher rate tax resulting in a total cost of £15,000 to pay the school fees. By paying the dividend to the trust which the child benefits from, no further tax is due.

Clearly, not all companies have been passed down a generation and many of you do not fit the above scenario perfectly. However, a similar result can be achieved without grandparent shareholders. Indeed, this might be worth considering if you are about to incorporate.

At the same time, this structure is not restricted to school fees specifically. Nursery or university costs are equally appropriate and for families with other dependent relatives this structure might also be of significant benefit to you.

We first implemented this structure five years ago and at that time, the arrangement was registered with HM Revenue & Customs. Since then, there has been no enquiry into the structure which should provide comfort to those of you who have concerns about any tax planning structures.

If you would like to find out more about this arrangement, please speak to your usual contact at MBM Commercial or contact:

Neil Ritchie
Head of Tax Services
Murray Beith Murray
T: 0131 225 1200
neil.ritchie@murraybeith.co.uk