So your son or daughter’s off to university? Congratulations! It’s a brilliant achievement and an exciting step, but like any big life event, university often whips up plenty of uncertainty for all involved.
To accommodate these larger fees and costs, student loans are available, but often they do not cover the full expenses of being a student and can be very expensive. Parents hand over an average of £360.00 month for each child they support at university – that’s £3,600 each academic year, (Source The UniGuide)
Naturally, some parents are uncomfortable about covering their children’s university costs. However it’s important to consider that the amount of loan or grant a student is entitled to is dependent on the parents’ income: the higher the income, the less is available for both the maintenance loan, and any maintenance grant. The loan and grant amount are tiered because parents are ‘expected’ to contribute. Of course, this is not a legal requirement, but if you are able to help your children, the money can help them make their university aspirations possible.
The best way to do this is to start saving as early as possible, and as tax efficiently as possible.
Parents can save in their own ISA, but there are also accounts specifically for saving for children that might make better sense as this allows parents to keep their annual allowance for their own saving goals, and the child-savings accounts allow for gifts from grandparents and friends.
Child Trust Funds (CTFs) were available to children born between 1 September 2002 and 2 January 2011 and were aimed at encouraging parents and other relatives to save for children. Despite being closed to new account openings in January 2011, they still accept contributions to existing accounts. Parents, grandparents, other relatives and friends can save for a child’s future, tax free, until the child reaches 18. A maximum of £9,000 can be paid into a CTF this tax year. This can be saved in cash or used to invest in other assets like shares. A child trust fund can also now be transferred into a junior ISA.
You can’t apply for a new Child Trust Fund because the scheme is now closed. You can apply for a Junior ISA instead. A Junior ISA (JISA) allows for tax free savings and anyone can pay into a JISA including grandparents, family & friends. A maximum of £9,000 this tax year (2021 / 2022) can be put away and this can be split between both a cash JISA and a stocks and shares JISA. Like the child trust funds, it’s important to note it might be advisable to transition away from shares and other investments back to cash, as the date for university grows nearer, to avoid any last minute falls in values. Also, like CTFs, the funds can only be accessed by the child when they reach 18, which is handily just in time for university.
Lastly, another simple tax haven for saving for your children’s university years is placing investments within a bare trust. Setting up this type of trust allows adults to gift money and other assets to children, while still retaining control until the child’s 18th birthday. Any income or capital gains are the child’s (unless the money was gifted by their parents and the income exceeds £100 in the year per parent – in which case the total income is taxed on the parent, but capital gains remain taxable on the child) and, therefore, are unlikely to be taxed (unless they exceed the child’s tax allowances). This tax break makes bare trusts especially useful for grandparents. Getting good advice from a suitable professional can ensure this is set up correctly and help you make the right choice for the benefit of your children.