In Saturday 30 June 2012’s Smart Money feature in the Scotsman Chris McGill focuses on top ten tips for paying for a higher education.
Costs of higher education are escalating and the inflationary environment means that living costs whilst students are at University are also on the rise. Long term planning for these costs is important to ensure a higher education and the benefit it brings remains available and affordable for our children when the time comes. Long term tax efficient planning can assist with allowing family wealth to cope with these costs.
1. Consider location
From 2012 universities throughout the UK, including Scotland may charge up to £9,000 per year for tuition. Scottish students will not be charged where they attend Scottish universities, although an honours degree at a Scottish university will typically take a year longer, four years, therefore the funding of living costs is required for a longer period than in England or elsewhere.
2. Scholarships and philanthropy
Scholarships and financial support will sometimes be available although this is much more common in certain countries abroad. For example in the US, universities also charge but large endowment funds can also assist with funding. Some scholarships are not widely known about so time spent investigating them can bear financial fruit.
3. Children's ISAs
Children's ISAs allow £3,600 to be invested per annum for a child and any interest earned is tax free. Funds are locked in until the child reaches the age of 18 and this is a good way of building up a tax free nest egg that could be applied to higher education funding.
4. Adult ISAs
Equally parents can currently invest £11,280 in a stocks and shares ISA (£5,640 in a cash ISA) which allows assets to be built up in a tax efficient environment. Funds can be accessed at any time in case they are required.
Setting aside funds in trust can be an efficient way for grandparents to reduce their chargeable estates for inheritance tax. These trusts can be used to fund higher education costs in the future. Straightforward gifts from grandparents or other family members will often also have long term inheritance tax benefits for families.
6. Children's Trust Funds
Children born between 1 September 2002 and 2 January 20011 can have a trust fund account. While HMRC provided some initial funds to these trusts the main attraction is the ability of parents, family and friends to add money to the account up to the limit of £3,600 per year. There is no tax to pay on children’s trust fund income or gains.
7. Student Loans
Cost effective student loans are available up to certain limits to facilitate maintenance and for appropriate payment of tuition fees. These can be paid off in fairly generous terms compared to commercial lenders.
8. Use Inheritances through Deeds of Variation
Parents will often receive an inheritance. That may be used directly to fund or assist with higher education costs but with a view to longer term inheritance tax planning, could be redirected by way of deed of variation to the student or a trust for their benefit. Restructuring an inheritance in this way can have long term inheritance tax benefits for a family
9. National Savings
To maximise tax efficient investment national savings products can be considered. premium bonds, fixed interest and index linked savings certificates along with children’s bonus bonds are all income tax free.
10. Long Term Saving
Long term saving, as tax efficiently as possible, will assist with costs of higher education. Some investment providers operate savings plans which can be an attractive and administratively efficient way of building up a fund over a long period of time often by way of a regular standing order. Up to certain limits these plans will often be structured as ISAs.