Is your Child/Grandchild going to University? – Are there any Tax Saving Opportunities you should be Considering?

A Level results have been published and the newspapers are telling us that ever increasing numbers of students are off to University.

In the current market of affordable mortgages with low interest rates is it possible for you to help your children climb onto the property ladder rather than survive (barely) in the usual University digs?

There are clear tax advantages to helping your children onto the property ladder: -

1.	By for instance you guaranteeing the mortgage, your child could purchase a property which by virtue of both owning the property and living in it as their principal private residence any gain on subsequent disposal should be free from Capital Gains Tax.
2.	It is possible that with a little careful planning your child might be able to let rooms in this property to fellow students. This would utilise your child’s own personal allowance. The “rent a room” relief effectively means income of up to £8,865 currently, could be received by them tax free. This would relieve you or at least help you with the obligation of having to continually fund them whilst they are living the high life at Uni!
3.	By acquiring the property as their residence so long as the values are not extortionate, Stamp Duty (or the new Stamp Duty Land Tax) should be avoided.
4.	If the property is in their names, then it will fall outside your estate for Inheritance Tax, saving the need to address this area of planning later on.

So where is the catch?

It is however fair to say that the complexities of the above may not be properly handled by a young student trying to grapple with academia, new and possibly close personal relationships as well as the paperwork!

All of the above are valid concerns and they are by no means exhaustive!

If some of these ring true with you, there are alternatives. By the use of a relatively simple form of Trust, your child can be given the use of a property without actually taking ownership of it. The same Capital Gains Tax exemption should apply by virtue of their occupation as a beneficiary of the trust. Once the property has served its purpose it is up to the Trustees (and no surprises here they would of course be yourselves) to decide whether to retain the property, sell it and use the cash for other purposes, or in certain circumstances decide the Trust has fulfilled its purpose and wind it up reverting the funds free of tax, back to the settlors (ie you.)

In this sort of vehicle it might even be possible for your child to gain the rent and room exemptions referred to above thus relieving you of the need to fund University living expenses out of after tax income.



As always, there are some tax oddities that need to be thought through dependent upon each individual’s circumstances, and if you would like to chat through your own circumstances to see whether the above tax planning would be of use to you then please do not hesitate to contact Stephen Cook at steve@nunn-hayward.com Tax Partner at Nunn Hayward.