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Image Source: Will Folsom

Member Article

Planning for education costs

With a recent Lloyds report showing that private school fees have risen nearly twice as fast as inflation in the past decade, many parents may be reflecting on education costs as their children head back to schools and university. Some parents will even be funding these costs out of income which has been taxed at rates at up to 62%.

The good news is that extensive plans can be made for children both before and after their 18th birthday.

One of the key routes to reduce the burden for parents is utilising the often unused personal allowances and lower rate bands of their children, rather than paying costs out of their post-tax income. This could involve income being paid to children from existing sources, typically by making a gift of income-producing assets.

However, there is a problem with minor children receiving income which originates from a parental gift, as income remains taxable on the parent when it exceeds £100. Therefore, for minor children, gifts from others such as grandparents work best.

Other ideas for children under 18 include having a Junior ISA account or saving funds in an existing Child Trust Fund. You can save up to £4,000 a year for your child tax-free until they reach 18.

Regular ISAs, now known as NISAs and available from age 16, are also tax efficient investments. You can gift children up to £15,000 per annum from age 18, for them to save tax free. There are also many other investments available to build up funds for your child when they are young.

Of course, these routes mean that the children have full entitlement to the funds at age 18. A trust could be used to allow some control over the funds remaining at age 18.

For those over 18, heading into further education, some ideas include:

  • share planning to provide an income stream from family companies;
  • trust planning for investment assets gifted from parents or grandparents;
  • ownership of family investments via a personal investment company;
  • property ownership planning so that those at university can receive rental income from those with whom they share a property.

Many of these routes can still be taken now for children over 18 who are heading to higher education or who are already there.

As is often the case, the ideas need to be personalised for particular family circumstances and advice should always be taken.

This was posted in Bdaily's Members' News section by Baker Tilly .

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