With exam season well underway, those wondering whether they can afford to go to university no doubt would advise parents to start saving early.
With accommodation at a premium, the cost of living crisis not abating and tuition fees at their highest level yet; this all adds up to a financial conundrum for many. In addition, those trying to avoid the punitive interest rate associated with student loans, can expect an annual bill of £20,000 or more. Of course, by this stage in life one hopes that your child has managed to secure summer employment to help cover some university costs and potentially weekend work during term time!
So what can parents do?
One straight forward option is to open a Junior ISA (“JISA”) which can be held either in cash or stocks and shares. The ISA wrapper benefit for parents being that this avoids an income tax charge where the income generated by their gift exceeds £200 annually (£100 if only one parent makes the gift into a JISA).
The annual JISA savings limit is currently £9,000, therefore if opened early enough a decent pot can be built. One should note that a child can take control of the account once they turn 16 but cannot physically withdraw any funds until their 18th birthday. Of course this savings account does not need to be used to cover university, the ISA could be used to support travel or their first house purchase. Equally they could spend it all on something entirely different once they turn 18, therefore care is required as to the value built!
Grandparents, Aunts, Uncles and other individuals transferring funds to your children are not subject to the £100 income assessment tax rule. Therefore these funds do not necessarily need to be held within an ISA-wrapper, however it is good practice to use the available ISA allowance assuming the returns are comparable to taxable accounts.
An offshore bond may be a valuable alternative investment structure to speak with an Independent Financial Adviser about. These are generally useful for those looking to build up a sizeable deposit and defers any income tax charge until the point where funds are withdrawn over the 5% allowance.
Grandparents familiar with creating trusts to cover the private school fees of their grandchildren, will no doubt be aware of the benefits of such a structure. Discretionary trusts allow trustee control over the assets, ensuring that the funds distributed to beneficiaries are spent in the desired manner. Most trusts can now be in existence for as long as 125 years, therefore funds can be settled to cover a number of financial crunch points in a grandchild’s life.
Family Investment Companies are increasing in popularity and once your children turn 18 family company shares can be settled without income being assessed on parents (rather than the child). As always, it is advisable to review the costs of running any structure or investment and weigh this up against any potential tax saving.
Should this article raise any questions, please do contact us.