Funding children at university

boundah

My daughter will be starting uni in 2012, just in time for the massive tuition-fee hike.

Although she's come to terms with the idea of a loan to cover the fees, I'd like to fund her living expenses (rent etc) myself, up to a total of around £7k a year.

I have some savings, and thought I might lend her enough money at 0% interest for her to invest herself and generate (say) £5k pa for the 3 years, thus paying no income tax. Presumably this would save me having to pay her from my taxed income.

Can anyone see a snag with this plan, beyond the obvious one of her choosing to make off with the swag?

Lokolo

To generate £5k a year, without capital loss, when interest rates are around 3%, would require £167k.

You've firstly said you want to be able to fund living expenses, which is fine, but then you've said you want to give enough money to generate income. Not sure what your aim is, either to give her some money to live off, or give her a large amount of money whereby she can generate her own income.

boundah

Thanks Lokolo. The aim is to generate c£5k pa interest for my daughter with the return of capital to me at the end of her studies. So yes, the loan would need to be quite large.

The reason I thought of doing it this way is that if I leave the money where it is now (an account paying 3.8% gross, less after I pay tax at my marginal rate) she could instead invest in her own name and get the gross interest as it would be below her personal allowance. This would save at least £1k a year by my reckoning.

Any further thoughts?

culpepper

Wont it limit her if she wishes to earn money herself? I mean if the income from the investment is her nontaxable allowance then anything she earned in her own right would push it over wouldnt it?
That might be a downer psychologically if nothing else as it would make her own endevours less valuable.

boundah

culpepper wrote: »

Wont it limit her if she wishes to earn money herself? I mean if the income from the investment is her nontaxable allowance then anything she earned in her own right would push it over wouldnt it?
That might be a downer psychologically if nothing else as it would make her own endevours less valuable.

Good point. However, if the interest comes to £5k she'd still be able to earn c£2500 before paying any tax. Even then it would only be taxed at 10% for the next 2.5k, assuming rates stay as this year. That should allow her to take on a bit of paid labour!

Lokolo

Yes that is fine. Makes a lot more sense now!

The only thing I wold worry about is if you should die. Obviously even the best in health can drop dead the next day (sorry to be sombre!) and I am unsure what the implications on your estate would be, I would assume your daughter would keep the whole amount, but pay IHT on it should it mean you go over your IHT allowance. (if you have other family members, a OH etc. it could cause problems)

You should also consider what would happen if you gave the money to your daughter and she ran off. Technically the money is a gift and she can do as she likes with it.

pollypenny

boundah wrote: »

Good point. However, if the interest comes to £5k she'd still be able to earn c£2500 before paying any tax. Even then it would only be taxed at 10% for the next 2.5k, assuming rates stay as this year. That should allow her to take on a bit of paid labour!

10% rate was abolished, remember the big hoohah.

Lokolo

pollypenny wrote: »

10% rate was abolished, remember the big hoohah.

It still exists if your interest income takes you over your personal allowance by around up to £2k

Oldernotwiser

Were you planning to have a formal loan agreement between you because you're talking about an enormous amount of money?

Alternatively (and I know that this is a very unMSE thing to say) if you have £167K kicking around spare, is it really worth the risk and hassle just to save a grand or so?

boundah

Oldernotwiser wrote: »

Were you planning to have a formal loan agreement between you because you're talking about an enormous amount of money?

Alternatively (and I know that this is a very unMSE thing to say) if you have £167K kicking around spare, is it really worth the risk and hassle just to save a grand or so?

Yes, it is a lot of money, so I'd have to think hard about whether it's worth the risk.

If I go down this route, I'd probably go for a formal loan agreement just in case she (say) marries a bad 'un and her hubby tries to take her to the cleaners.

John_Pierpoint

Depending on where she is going to uni, how do you see the local housing market?

Becoming a "landlady" can be a maturing as well as profitable experience,

Security depends on your relationship with your heir - you tend to reap what you have sown.