Ways To Pay University FeesWritten on September 17, 2014 by Kirk Rice LLP
Financial Services QuestionsThe Question:
We have 3 children under 10 and following my promotion at work I am now thinking about how we can support their university years. What can you suggest?
Kirk Rice LLP answers:
I selected your question in an effort to be topical, at the start of the new University Year and to raise awareness of forthcoming changes that will help you. As I do not know your full circumstances I will look at some facts and the changes rather than list savings schemes. Most clients underestimate the debt their child could build up by the time of leaving University.
According to the National Union of Students the average student expenditure is about £22,000 each year (2012/13) on tuition fees, accommodation and living costs. Assuming inflation at 2.5%pa today’s 10 year olds commencing studies in 2022 will need more like £84,000 over 3 years. Currently, annual loans, amount dependent on parent’s income, towards living costs are £7,751 in London and £5,555 outside London. Tuition Loans can be no more than £9,000 or the University fees charged where lower. Repayments commence only when the student is earning more than £21,000 a year.
The first change is that from April 2015 the Income Tax Savings Band increases to £5,000 and the personal allowance will be £10,500. So for a student with no earnings, that’s a total tax-free allowance of £15,500. That’s a great boost for parents or grandparents who have offshore investment bonds. These can be assigned in part or whole to the student to cash in and only the profit part will be assessed upon them. As profit from offshore bonds is taxed as savings income the first £15,500 each year won’t be taxed. An assignment of part of a bond will consist of original capital and it’s profit so the actual amount available to the student can be much more than £15,500.
The second change is that anyone over 55 can withdraw money from their pension fund during the University years. This means it could be a sensible alternative to consider paying higher contributions now to use the fund in the future. You benefit from tax relief on your contributions that is not available for any other savings scheme. Of course, if you take money from your pension savings you’ll have less to support yourself when you retire. Funding a good education needn’t be taxing and, with the right financial planning, it can achieve great results for everyone.
If you would like more advice regarding this issue or any other financial services matter, please contact us.
If you would like to receive Kirk Rice’s Financial Services Questions regularly by email, simply email info@kirkrice.co.uk stating Financial Services Questions in the subject heading and we will add you to our distribution list.
Sources: www.gov.uk/student-finance/loans-and-grants
Please note: answers are given for general guidance only and specific advice should be taken before acting on any of the suggestions made.
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