University Students and Tax: Supporting your Children

University students and tax don’t often mix. But when your children are grown up and heading into higher education, it pays to plan ahead.

University Students and Tax
University Students and tax

(4 minute read)

Today’s tip will explain:

  • What financial support is expected of parents when children go to university
  • How to support your university students and tax obligations

University Students and Tax

Most of the time, parents should avoid the temptation of passing income to children to access lower tax bands. This is because, generally, parents are still liable for tax when their minor children gain income from assets received from parents.

That’s not to say you shouldn’t give minor children income in the form of, for example, shares in a company. But doing so for tax reasons likely isn’t worth it.

However, things change when your child turns eighteen.

The rules change when your child is no longer a minor and transferring money or assets to them becomes more useful.

For many children, this is also the age at which they’ll go off to university.

As a result, you might consider tax planning for your child’s university years to benefit from their new circumstances.


Financial Expectations When your Child Goes to University

Many parents don’t know that government expects them to contribute financially to their children’s higher education. However, this is often the case.

Simply put, the more you earn, the less student loan your children receive and the more you should put forward. The government expects some parents to contribute over £5,000 per year.

You could simply give money to your child via cash or bank transfer but this isn’t very efficient as you’ve already payed tax on the income. Rather, you can carefully structure your finances around tax legislation to lower your tax bills.

Getting your adult children involved in property is a fantastic way to boost their income and set them up for success in and after their time at university. And with rent-a-room relief, you can do so in a tax efficient manner.

We explained some tax planning for university tips in a previous article, but we’d like to explain a slightly more complicated (though potentially more rewarding) strategy today.


Investing with your Child

Rent-a-room relief allows the occupier of a home to charge a lodger rent of up to £7,500 without incurring tax.

Your child can use this, alongside their personal allowance (£12,570), for an income of around £20,000. This is generally enough to cover tuition fees and living expenses.

The strategy involves you and your child acquiring a property together, typically as ‘tenants in common.’

The child then lives in the property and rents it out to other students.

As a parent, you can own most of the property but make arrangements for your child to draw the funds.

As a parent, you can use this strategy to accrue money for your child at much lower tax rates.


Other Options for University Students and Tax?

Buying student property is a great way to pass on income to your child, but it’s a big step to take. For those without property experience, it can be complicated and putting.

However, there are plenty of options for parents looking to support their child’s higher education without investing in property, which you can look over here.

And remember, if you’re looking for ways to be more tax-efficient, nothing’s better than a Tax Expert.

Contact us at 01772 788200 (or WhatsApp 07787 010190 out-of-hours) to talk your tax strategy through with our team. We have years of experience in guiding our clients towards tax efficiency.


Kind regards Ilyas


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