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HMRC internal manual

Inheritance Tax Manual

Other assets due to the deceased: school composition fees

Various bodies, such as insurance societies, operate schemes under which parents, grandparents, guardians or other benefactors pay in advance a composition fee towards the cost of a long period of schooling. The inheritance tax position on the death of the donor depends on the donor’s rights.

If the donor has an unrestricted right to terminate the scheme then the value of the right of termination is part of the donor’s free estate.

The situation is different if the donor has only a limited right to a refund. For example, a refund might be due where the child does not enter the school or dies or leaves the school before the completion of the agreed period. In this situation, any sum that the deceased might have recovered had the child been withdrawn from the school at the time of the death is not regarded as part of the death estate. In addition the estate’s contingent right to a refund should the child subsequently leave the school is regarded as of no value for inheritance tax purposes.

The payment of a composition fee may be chargeable as a lifetime transfer (IHTM04051)