….for Uni Fees funding. Recent A-level results had many students nervously checking to see if they achieved the necessary grades for their preferred University course. Equally, there were as many concerned parents contemplating how they can provide financial support for their child’s studies.
The Budget contained a couple of measures that will score top marks for parents looking to help fund their children through university.
More than half of parents underestimate the maximum amount of debt their child could be saddled with on leaving university. Research has shown that 58% of parents think the figure is less than £40,000 – some think it’s well below that figure.
The average annual student expenditure is £22,189, made up of tuition fees and living costs. For a typical three year course, that’s almost £67,000.
Firstly, the Budget threw up an alternative way of saving for university fees – through a pension. From next April, pensions will become accessible much like bank accounts for the over 55s. This opens up the possibility of tax relievable uni fees funding. Pension saving will give a better return than an equivalent ISA in all but a few extreme cases.
The only remaining barrier to accessing pension savings under the new flexibility rules is that the saver must be at least age 55. This shouldn’t be a problem for most grandparents in a position to help out, but some younger parents may not reach that age by the time their child completes their studies.
Secondly, the changes to the savings rate band next April will see non-taxpayers, which will include many students, able to receive an extra £5,000 in savings income completely tax free. The personal allowance is set to increase to £10,500 next tax year. So for a student with little or no earnings, that’s a total tax-free allowance of £15,500.
That’s a great boost for parents or grandparents who have planned to help fund the costs with an offshore bond. Offshore bonds or bond segments can be assigned to the student to cash in and the chargeable gain will be assessed upon them. As gains from offshore bonds are taxed as savings income, provided they’re kept within £15,500 they won’t be taxed. Over a three year course, that’s up to £46,500 in chargeable gains which can be taken free of tax.
There’s also an inheritance tax advantage to this strategy. The assignment of bond segments from a parent to meet full-time education costs is likely to be immediately outside the estate. Assignments from grandparents will be a potentially exempt transfer and this will be IHT free after seven years.