Solutions for parents to help fully cover a child's university living costs
Our University Fund Calculator shows what parents might need to save or invest to meet any financial shortfall facing their child when they head off on a three-year degree course.
The shortfall can occur because the maintenance loan is means tested, which means students from middle income families would not be eligible for the full loan to cover living costs.
Sean McCann, NFU Mutual Chartered Financial Planner, says the increasing cost of seeing children through university is a hot topic for many families, adding: “The earlier you start to plan, the more options you have available.”
Sean says the starting point should be to work out how much money will be needed and when it will be needed by.
“Using the current costs you can project forward using an anticipated rate of inflation, to get an idea of the sums you’ll need,” says Sean. “You then need to consider how much of the cost you’ll be willing or able to fund from your regular income when the time comes, and identify any lump sums and/or current income that you could invest now to meet any shortfall.”
A key part of maximising returns on your investments is to make sure you don’t pay more tax than you need to on your returns. Taking advantage of your annual ISA allowance (£20,000 for the current tax year), protects any growth from UK Income Tax and Capital Gains Tax.
The ability to access pensions from age 55 gives many parents another option when it comes to helping their children through university. For every £80 paid into a pension, the Government will add another £20.
Any growth is free from UK Income Tax and Capital Gains Tax and when you want to take money out, up to 25% of the fund can then be taken as a tax free lump sum.
How grandparents can help
“Each child has their own tax allowances, meaning they can have income of up to £11,850 and capital gains of £11,700 in the current tax year without paying tax,” says Sean. “Grandparents can take advantage of this by setting up investments for their grandchild under ‘bare trust’. This means that any income or gains are assessed on the child. When the child reaches 18 they can access the money to help meet the costs of university.”
The added benefit of making gifts to grandchildren in this way is that it can help reduce any potential Inheritance Tax (IHT) liability. Up to £3,000 can be given away each tax year free of IHT. Any regular gifts may also be free of IHT if they are made from income (not capital) and don’t impact on your normal standard of living. Most other gifts will be free of IHT if you survive for seven years after making them.
Discover your options
The right investment choice for you will depend on your circumstances, how long it is until your child starts university and your attitude to risk when it comes to investments.
Your NFU Mutual Financial Adviser can explain the options and help you make the right decisions.
If you have a question about your family's financial future, we can help with friendly expert financial advice. You can call or come and see us.