Parents and grandparents are becoming increasingly concerned about the seemingly inexorable rise in the cost of a university education. This point was very recently underlined by Manchester and Durham universities confirming that their annual undergraduate fees are increasing from £9,000 to £9,250 as from September 2017, following an announcement by the higher education minister Jo Johnson that universities that were meeting the expectations of the “teaching excellence framework” would be able to raise fees for entry in the 2017/18 academic year. If we assume that rent, books and “sundries” come in at say £10,000 per annum we are looking at a total bill of £57,750 in today’s money for a three year university course. Yes student loans are available to meet some or all of these costs but what can be done by parents and grandparents to ease at least some of the pain?
Naturally, when looking to invest the first thing is to make sure that any investment is as tax efficient as possible. A good place to start is a Junior ISA (JISA) which can be opened for a child who is under the age of 18 and living in the UK. There are some exceptions to this rule if a child lives outside the UK and it is worth looking at the government website for more information. There are two types of JISA. The first is a cash JISA where no tax is due on any interest paid. Alternatively, there is a “stocks and shares” version where the funds invested are not subject to tax on any of the capital growth or income received. A big tick therefore from a tax perspective. But there are some potential drawbacks. Firstly, the annual subscription for a JISA is limited. For the current tax year the amount is up to £4,080. The second is that the child can take control of the account when they are 16 and have complete access to any funds from the age of 18. It is worth remembering that an “ordinary” ISA cannot be in a child’s name unless it is a cash ISA for a child over the age of 16, but a parent/grandparent could effectively “earmark” their own ISA funds for a child/grandchild’s further education. There seems to be an opportunity here where it is possible for a 16 and 17 year old to get two ISA allowances – £4,080 in a Junior ISA and £15,240 in an adult cash ISA!
There are other tax efficient options to consider which can be held in the name of a child such as the National Savings Children’s Bond and Friendly Society Savings Plans which are “qualifying” life assurance plans that run for a minimum of ten years and produce tax-free benefits at that time. Again the government places premium restrictions on these plans because of their tax advantages but they might have a place in the bigger picture.
More can be done involving the use of trusts and other tax structures, which when used correctly can offer a highly tax efficient way of providing for a university education, and offer greater control as to how and when the invested funds can be accessed. Future posts will explore further, but perhaps they are more suited to the darker evenings! Until then enjoy the summer.
By David Lane, Partner and Technical Director LGT Vestra
For more information please contact:
William Townrow, Partner LGT Vestra.
020 3207 8384