Funding your child’s further education

Concerned about how to fund university for your child?

Fees at most of the Ivy League universities in the UK are £9,000 per annum and on top of that are living expenses, accommodation and books. What can parents do to help their offspring and themselves in the most tax-efficient way?

Funding your child’s further education through taxed income is inefficient, so what other ways could your child’s university expenses be financed? Is it possible to divert some of your income directly to them?

When a child reaches 18, s/he is viewed by the taxman as an adult and no longer, therefore, limited by the government’s strict anti-avoidance rules that apply to children. This means that you are able to shift some of your income to your young adult offspring.

One idea is to gift your 18-year-old shares in your company, which would make it totally tax free for you and totally tax free for your student offspring. To do this, it is possible to create a different class of shares, say, a non-voting ordinary class share within your company, which would then pay out a different dividend to the other shares.

Another idea worth exploring is to transfer assets from your company and then direct the income they generate to your 18-year-old. Again, for this, you could create a new class of share in your company for your 18-year-old and pay dividends directly to them while they’re at university.

What will this do? It will save you around 22.5% or more in tax. For this reason, it is worth asking an expert to work out the figures, so if you are considering this then please contact your account manager to discuss the options further.

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