Smart Tax Planning for University Fees (for Parents)

Wondering how to best help your child through their university days? Learn how Smart Tax Planning by inviting them into your business can provide for university fees!

Tax Planning for University Fees
Smart tax planning for university.

Tax & University Students

Many parents look towards their children’s university experience with both anxiety and pride. Consequently, it’s common to want to provide some additional financial support to help them whilst they’re studying. This is where smart tax planning for universities comes in.

The amount of assistance you offer will depend on your specific situation. All circumstances are unique. For instance, you may simply offer a financial buffer or you might offer your child more comprehensive financial support.

The tax planning for university solutions we’re suggesting today can help in a variety of circumstances, but both rely on one key factor: making your child a shareholder in your business.

Providing a Safety Net

Providing a financial safety net can help with balancing a desire to protect your child whilst preserving their independence. In other words, allowing them to take greater control over their finances by learning as they go.

This is also one of the simplest tax planning for university strategies to employ.

When your child is a shareholder, they can withdraw up to £2,000 per year from your business without incurring tax (down from £5,000 in 2018). This is due to Dividend Allowance.

This extra £2,000 can make a huge difference in their finances. For example, it can grant some financial breathing space, help them establish savings or be vital in an emergency.

However, you may want to provide more in some cases, such as if your child isn’t eligible for the full student loan.

Comprehensive Support

You can still be tax efficient even when offering more comprehensive financial support to cover your child’s living expenses.

Firstly, make your child a shareholder in your business. Then, gift the child some shares (being careful not to go above the £12,300 Capital Gains Tax exempt allowance).

You can then take advantage of Rent-a-Room Relief by charging your child rent on their room at home. Rent-a-Room Relief allows you to earn up to £7,500 tax-free from rental income.

Your child will take dividends from the company to cover their living expenses, including the rent they pay to you. With this tax plan, they will be subject to at least 7.5% in tax on the funds they withdraw above £2,000.

As a result, this strategy allows you to cover your child’s expenses whilst potentially saving you thousands in tax.

This is due to how the rent is paid to you. Your child withdraws funds from the company and pays them forward to you as rent, which you pay no tax on. You effectively receive access to funds from your business without incurring tax.

Making your child a shareholder is a fantastic way to give them and yourself peace of mind about finances whilst they’re studying. But be cautious, complex tax planning for universities is tricky and you could easily be caught up in anti-avoidance legislation.

Call us today to find out how our team of specialist accountants can help you produce an effective tax-planning strategy. We can help devise a plan that allows you to keep your finances, and your child, extra secure.

Kind regards Ilyas