Life after A Levels: How to fund the increasing costs of university
Jane Parry is lead tax partner at PM+M. Here she explains how parents can keep the cost of university funding down.
After the initial joy of getting A Level grades and their place at university, you then need to work out how best to pay for your child’s further education.The cost of funding children through university is increasing each year. Long gone are the days of generous grants and fully paid tuition fees.
In many cases the costs will be partly or entirely funded by parents. If you are a higher rate tax payer having to fund your child out of net income, the amount of income you need to meet their costs can be startlingly high.Depending on the course and your personal circumstances, it can cost anywhere between £18,000 and £50,000 to get a degree, according to push.co.uk, the independent university guide. If you are paying for that out of income you have paid 45% income tax on, that’s a huge amount of income you are going to need.
There are, however a number of ways to help ease that burden. The biggest one is finding a way for the income to be taxable on the child rather than on you, using their personal allowance and basic rate tax bands.If they are under 18, your options are limited. Once they are over 18, however, there are some things you can do.
If you run a family business then think about giving them a job. If they work in the business, perhaps during holidays, you can pay them a wage. It must be at an appropriate rate for the work they do, so make sure it’s reasonable and will stand up to scrutiny if ever challenged. It’s also a good way to get them working to earn their keep!You might also consider giving them a small shareholding in the business upon which they can receive dividend income. If you’re worried that they are not ready for the responsibility of share ownership, you could put the shares into a trust that you control but they receive the income from.
Another option to look at is potentially sponsoring their course if it is relevant and appropriate to the business. This allows tax free payment to fund living costs of up to £15,480 per year.There are quite tight rules on this though where the sponsorship is for a close relative of the directors, but it can sometimes work.
If you are thinking about whether to buy a house for them to live in whilst at university, it might be better to buy in their name with a loan from you secured on the property, rather than buy in your own name.This would allow any capital gain on ultimate sale of the property to be tax free using the child’s principal private residence exemption. The child could also rent out rooms in the house to create additional income. Under the Rent A Room scheme, the first £4,250 per year is tax free.
Student loans have, of course, been hotly debated for many years. The cost of student loans has been increasing, so it’s well worth exploring whether cheaper finance is available; for example, using your offset mortgage or maybe even loans from grandparents.On the subject of grandparents, if they start making gifts to your child, that could form a useful part of their estate planning strategy as well as helping out with the university costs.
There are inheritance tax annual exemptions they can use, as well as exemptions for regular gifts out of income. If you’re planning ahead, an investment policy started by grandparents when the child is younger can be a great way to build up funds to pay university costs. This is just a brief round-up of some of the ways you can help reduce the cost burden. There are options available so it’s well worth exploring what might work for your family.
