25th September 2014 at 8:33am
They used to say a good education was priceless, but these days we know it can come at a cost.
This year sees a record number of pupils being accepted into university, heralding a time of celebration for many parents but also one of reflection. Whilst it’s a wonderful prospect that your talented teen will be taking off to uni it’s also a daunting one as you ponder the price.
We all know that further education doesn’t come cheap. But more than half of parents underestimate the cost. Our own research has shown that some 58%1of parents think it’s less than £40,000 (some even think it is well below that figure). However, according to the National Union of Students2 , tuition fees, accommodation and living costs for a typical 3 year course cost in England (excluding London) are now on average £67,000. And, with inflation running at 2.5%, that could potentially rocket to £83,000 by 2022.
But don’t despair, there are things you can do to help fund their new adventure. And, if you start early enough, saving as little each month could make a dent in that cost.
The Budget in March 2014 contained a couple of measures that will score top marks for parents looking to help fund their children through university. And these could influence both where you save now, and how you use your savings and investments when the time comes.
Your pension could now be an alternative way of saving for university fees. From next April, pensions will become virtually as accessible as bank accounts for the over-55s. Your pension could now be an alternative way of saving for university fees. From next April, pensions will become virtually as accessible as bank accounts for the over-55s. This opens up the possibility of saving for university fees in an advantageous tax environment and at the same time getting a boost from the government in the form of tax relief. You’ll generally be able to access 25% of your pension savings tax free and can take the rest how and when you want, though you are likely to have to pay income tax on that. Of course, if you choose this route you’ll need to remember that money invested in your pension can go down as well as up and you’ll need to make sure that your pension savings can still meet your own future income needs in retirement as well as those uni costs.
Some younger parents may be too young to draw on their pension before their child completes their studies. So they may consider making use of the generous rates available on student loans of up to £9,000 each year which can be used to cover tuition fees and living costs then paid off later, perhaps once the parent can access their pension.
A booster shot
The personal allowance is set to increase to £10,500 next April. At the same time there will be changes to how savings income will be taxed which will benefit those who have earned income below £15,500. Anyone who earns less than the personal allowance will benefit from a further £5,000 tax free allowance on their savings income in addition to their personal allowance. So, for a student who’s not working, that’s a potential total tax-free allowance of £15,500 a year.
Making use of that could be a great boost during university years.
A gift to the gifted
Grandparents can leave money in their will to their grandchildren. But some may prefer to see their grandchild unburdened by student debt when they leave uni. By making gifts during their lifetime, grandparents could take steps to save inheritance tax, leaving behind more for their family and less for the taxman.
Share some Trust
A common concern amongst grandparents is making gifts to their grandchildren at such a young and impressionable age. Making the gift to a trust rather than outright can relieve any fears of ‘too much too soon’. This will allow the grandparents to control how and when benefits are paid in the future whilst making a gift now that could help them save inheritance tax.
Ways and means
As you can see there are lots of tax efficient ways you can now save for life’s events. And, it needn’t be just be about university fees or gap years. With pensions becoming more flexible and by making use of the various tax allowances, reliefs and exemptions, funding the future needn’t be taxing.
Laws and tax rules may change in the future, and the information here is based on Standard Life’s understanding in September 2014. Your personal circumstances also have an impact on tax treatment.
No guarantees are given regarding the effectiveness of any arrangement entered into on the basis of these comments.
Standard Life has not provided you with advice. If you have any doubts about funding university fees, you should seek advice. There may be a cost for this.
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1 All figures, unless otherwise stated, are from YouGov plc.