There are significant costs involved for families with children going through private schooling or university; costs which seem to increase year on year. With generous grants and funding a thing of the past, it is important to consider the opportunities available to help reduce these costs and perhaps more importantly, to ensure you plan for this adequately in advance.
Accommodation, tuition fees and living costs for the child are usually paid out of parent’s net income, which is often after the deduction of up to 62% income tax and national insurance. This requires a substantial gross income, especially if you also wish to minimise the amount of debt your child takes on. If the child is over the age of 18 when the costs arise, there are a number of things which parents may consider to help.
The most efficient methods for children over 18, are those that enable income to be taxed on the child rather than on the highly taxed parent, using the child’s personal allowance and basic tax rate bands. These include;
• Planning for shareholders in family companies
• Trust planning for investment assets
• Personal investment companies
• Property planning
If there is doubt over whether the child is ready for the financial responsibility of direct share ownership, trusts can be used over which the parent can retain control (as trustee). Through this method, the child could receive up to £40k pa without having to pay any of this to the tax man.
Whilst they are at university, you may also wish to consider whether to purchase a property for your child to live in. However, before deciding on this, it is important to fully consider what you might do with the property once your child has left university, and the tax implications of selling and / or renting.
Very often today, extended family members help out with financial support for education. There are tax breaks for gifts from grandparents to support a grandchild under the age of 18, which if structured correctly alongside their own tax planning, can form part of the grandparents inheritance tax planning. Each family should consider their particular circumstances carefully and multi generation approach may be appropriate for some.
Every family is different, but with careful advance planning, tax savings can made. For more information, please contact Rachael Dronfield.
