Financing a student can be an education in itself!
Thousands of young men and women have, over the last few weeks, embarked upon new lives as students across Scotland. For parents not only is it a potentially “difficult” time as their youngsters “fly the coop” but it can also be a great financial burden on the family budget. Not only will many parents need to help out their children throughout their university years but they will also want, where possible, to try to ensure that their youngsters do not come out at the other end of the further education process with a mountain of debt which will prove crippling in the years to come.
Research suggests that 75% of Scottish students expect to leave university with debt and with a high percentage anticipating that figures are likely to exceed £10 – £15,000. Many students do not have sufficient money to meet their current monthly outgoings and many more, if just managing to get by, find their budget extremely tight.
Maybe it’s a little late now to “forward plan” if your youngster has already started in further education but if you have children to follow, you may at least consider some of the following:
The best known scheme aimed at children is the Individual * Savings Account (ISA) where up to £3600 can be saved tax free each year. When the beneficiary turns 18 the money can be transferred into an adult ISA or pass to the young adult. A parent (to keep control of the money) may save for the child’s education in their own ISA. Other child savings products are available from banks, building societies, NS+I and Friendly Societies.
Parents may prefer to pass on a sum of money but still retain some control by putting funds into a trust. Control can be afforded to the trustees who will decide what proportion of the funds can be passed on to the students and when. Alternatively the age at which the funds are advanced can be established at the outset.
Trusts can allow families to provide funds for the future generations without the assets passing outright or at least until the youngster reaches a certain age or the trustees see fit.
Gifts of money can be made directly to a youngster or a loan could be made with a loan agreement being entered into to regulate repayments.
Gifting money directly, depending obviously on the maturity of the youngster, can have certain advantages particularly in reducing the value of an estate for inheritance tax purposes.
Although many youngsters in Scotland throughout their first year at university will be allowed a place in Student Halls, thereafter most have to find their own accommodation. In cities such as Edinburgh, St Andrews or the “oil capital” of Aberdeen, rental costs can be prohibitive. Parents may find the prospect of a “Buy to Let” mortgage very attractive – a two/three bedroomed flat can be purchased and then rooms sub-let with the income generated being used to subsidise or even clear the mortgage and associated monthly costs.
Properties can also be purchased in the student’s name and, since it is the main residence, then any gain on selling will be exempt from capital gains tax. Tax relief of * up to £4250 per annum can also be claimed if other rooms are let out.
Whilst the above may assist with the financial burden, what undoubtedly is of equal importance is for parents, at an early stage, and not just when their child leaves home, to teach simple skills such as budgeting (the basics of income versus expenditure), the habit of saving and generally basic financial principles. The economic climate is tough for everyone, and particularly for students, but if parents can pass on a few sound financial practices and habits early on they can lead their children by example for the future.
*Based on current allowance figures
Pat Gray, Private Client Partner