Going to university and getting that first taste of independence is an exciting step for students. There’s a lot to consider and parents may of course wish to support their children financially, where possible. Here are three tax planning points of which you should be aware if your children are heading off to university.
1. Many believe that students are exempt from paying tax; this is not the case. However, every individual can earn up to the personal allowance, currently £11,500 per year, before tax needs to be deducted.
Should a student work only during the holidays, an incorrect tax code may result in Income Tax being deducted from their earnings. In this case a tax repayment claim, form R40, can be submitted after the year end in order to reclaim any overpaid tax.
2. You may wish to provide your child with an income so that they will not need to work or to avoid the need for them to take out a loan whilst they are at university. Usually, this income is paid out of your net income i.e. after tax.
However, if you own some income producing assets, such as a share of the family company or investments, and you do not require the capital, it may be possible to transfer these assets into trust for the benefit of your children. Structured correctly, this could allow any income received on these assets to be passed directly to your children, making use of their personal allowance and, potentially, their basic rate band in order to reduce the tax burden, on you, of this income.
3. Finally, with the costs of student accommodation being a large proportion of their outgoings, you may be considering purchasing a property for your child to live in whilst at university. It is important that you are aware of the tax implications of this. If purchasing in your own name, the 3% Stamp Duty Land Tax second property surcharge is likely to apply. In addition, on sale of the property Capital Gains Tax would be due on any increase in value.
Purchasing the property in your child’s name would prevent this but would involve giving away the capital and your child would then be able to sell the property, without your knowledge, should they wish.
We can advise and assist you in setting up a trust, which would allow you to structure the purchase in such a way as to get the best of both worlds; allowing you to retain control over the property whilst being able to benefit from the reliefs available to your child.
The right advice will help to avoid unexpected tax consequences and will enable you and your child to focus on other things, such as the study versus socialising balance!
Get in touch with one of our tax team for further advice on the above or any other queries about tax at universityContact us
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