How to help financially support children and grandchildren through university

As thousands of students find out their A level results, university life beckons for many.

With the average university tuition fees at more than £9,000 a year, many students starting their university life will leave their studies with far more debt than their predecessors.

Often parents and grandparents are keen to help prevent university-bound children and grandchildren from racking up large amounts of student debt, and want to offer financial support to their loved ones, also helping reduce their estates for Inheritance Tax purposes.

Stephanie Chung, solicitor in the private client team at Wake Smith, looks at the real costs of going to university and ways to help.

This article covers:

• The cost of tuition fees and repayment term?
• Does financially supporting your child through university have Inheritance Tax implications?
• Is there a limit to how much money you can give your child?
• What if you already own a property that you would like to pass on to your child?
• Can grandparents financially support their grandchildren in the same ways?
• Your next move?

The cost of tuition fees and repayment term?
Tuition fees are currently capped at £9,250 per year but the average cost of living is around £8,245 a year.

For UK students, Tuition Fee Loans and Maintenance Loans are repayable loans offered by the Government, however these may not cover your full costs.

The maximum Maintenance Loan for someone attending university outside of London, living away from home is up to £9,978 (subject to eligibility).

If a salary of £25,000 per year is secured after leaving university the student loan can be paid off within 30 years. This on top of ever increasing cost of living may mean that parents and grandparents may consider financially supporting their children and grandchildren respectively through their time at university.

Does financially supporting your child through university have Inheritance Tax implications?
If a child is in full-time education, parents can pay for rent, tuition fees and maintenance without there being any Inheritance Tax implications.

There is no set limit for maintenance money; however it needs to be considered a reasonable sum to cover things like food, bills and spending money. If it is excessive, HMRC may deem that there is a ‘gift’ element, and this could have Inheritance Tax implications.

You can help your child by:

• Paying their rent to the landlord or agency by direct debit or standing order
• Paying tuition fees direct to the university
• Paying an allowance into your child’s account to general living expenses on a regular basis.

Is there a limit to how much money you can give your child?

Everyone can give away £3,000 each year, to whomever they like, without any tax implications (the annual exempt amount).

You can also make what are known as Potentially Exempt Transfers (PETs). These include any gifts of value over the annual exempt amount.

These gifts are tax free, so long as you live for seven years or more from the date of the gift. If you do not survive seven years from the date of the gift, it will be taken into account when calculating your estate.

Alternatively, rather than giving money, you may choose to buy a property for your child to rent out or live in (or both) while they are at university. If you survive for seven years or more, there are no tax implications with this.

You are not able to receive any benefit from this property yourself. If, for example, you live rent free in a property you have bought for your child, then this ‘gift’ is no longer exempt from Inheritance Tax.

What if you already own a property that you would like to pass on to your child?
It is more complicated to pass on a property you already own, as there may be Inheritance Tax and Capital Gains Tax implications. In this case, it is best to seek specialist advice.

Is there a way to protect your child’s property from unforeseen future circumstances, such as financial difficulties?

Yes – by purchasing a property (or putting money) in trust, as long as the value or amount is less than £325,000. This is £325,000 per giver, so two parents could together give a house up to the value of £650,000.

Buying a property in trust for your child means he or she is the beneficiary, but the property is managed by trustees. This affords a degree of protection if your child ever encounters financial difficulties. For example, it may not be claimed if they find themselves in debt in the future. Also, it may provide protection from any claim by a spouse or civil partner as part of any potential divorce settlement.

A property in trust can also benefit more than one individual. For example, a family with two children attending the same university can benefit both offspring with one trust.

Can grandparents financially support their grandchildren in the same ways?
Unlike parents supporting their children, there are Inheritance Tax implications when financially assisting grandchildren.
But there are several ways in which they can help:

• Grandparents can give ‘small gifts’ up to the value of £250 free of tax to each grandchild every tax year. However, it isn’t possible to give a sum larger than £250 and claim the first £250 as a ’small gift’.
• Grandparents can give away £3,000 every tax year (to any person they like) free of Inheritance Tax.
• They can also make gifts of any amount, tax free, so long as they survive for seven years from making the gift.
• The trust option, referred to above, is also available to them - it is always best to seek professional advice.

A provision that can be particularly relevant to grandparents is the giving of surplus income: if an individual receives more income than they require and which would otherwise be saved or spent as disposable cash

For example, if you receive a monthly income of £3,000, but only spend £2,000 on living costs – you can give away the balance of £1,000 free of Inheritance Tax.

The conditions here are that the giving must be of a regular nature to some degree – monthly, bi-annually or annually etc – and the person making the gifts must be able to maintain a normal standard of living without recourse to capital.

There is no fixed minimum period however such gifts must not affect your standard of living.

If grandparents can assist in this way it is very important that they keep detailed records as HMRC will want to see evidence of income and expenditure.

This is also a way of preventing the grandparents’ capital building up, and so reducing any future charge to 40% Inheritance Tax.

Your next move?

For further information please contact Stephanie Chung at Wake Smith Solicitors on 0114 224 2114 or email [email protected]

Find out more about our Wills and Probate services

This article was revised and updated on 18/08/23