University Maintenance Gift

buffman

It makes sence for my daughter to take out a student loan to fund both tuition fees and maintenance rather than me funding the maintenance part upfront.

In addition to this, I would like to give her about £25k primarily for living expences (the majority of which she will probably not use due to the maintenance grant).

What is the best way to do this to avoid inheritence tax? I probably will divide the gift into 3 annual payments.

xylophone

http://www.direct.gov.uk/en/MoneyTaxAndBenefits/Taxes/BeginnersGuideToTax/InheritanceTaxEstatesAndTrusts/InheritanceTaxwhenpassingonmoneyorproperty/DG_179336
You can also make exempt maintenance payments to:
your husband, wife or civil partner
your ex-spouse or former civil partner
relatives who are dependent on you because of old age or infirmity
your children, including adopted children and step-children, who are under 18 or in full-time education

I should think that this would need care though - eyebrows might be raised at HMRC if your student child is being showered with a few thou' of tenners every month.....

It might be a good idea to keep records and accompany each gift cheque with a letter stating that the money is to cover books, rent, fees etc for the academic year Sept 2012 -13, 13-14. etc etc

buffman

xylophone wrote: »

I should think that this would need care though - eyebrows might be raised at HMRC if your student child is being showered with a few thou' of tenners every month.....

Do you think £8K per year for total living expences will cause a problem? This figure is in line with what universities advise. The only fly in the ointment is that she is also taking out a maintenance loan.

xylophone

From what I know of students £8000 might not be enough..:D

£8000 seems reasonable given the cost of textbooks, rent, utilities food, entertainment , holidays etc.- I don't see a problem with the loan - after all she'll have to pay it back at some point.

buffman

I appologise for not being clear in my last email. I was proposing in giving her £8K per year ontop of the maintenance loan that she takes out. Anything she does not spend she can keep to pay off the loan at a future date or anything else that she wishes. Will this cause a tax issue?

xylophone

I appologise for not being clear in my last email. I was proposing in giving her £8K per year ontop of the maintenance loan that she takes out. Anything she does not spend she can keep to pay off the loan at a future date or anything else that she wishes. Will this cause a tax issue?

You are choosing to make annual maintenance payments to your daughter. £8000 per annum seems quite reasonable. Your daughter is choosing to take out loans - that is up to her. If she chooses to save some of her loan/maintenance money then that is also up to her.
I don't see a problem.

anselld

buffman wrote: »

It makes sence for my daughter to take out a student loan to fund both tuition fees and maintenance rather than me funding the maintenance part upfront.

Why? You are in the fortunate position to be able to make this gift. Why does it make sense for you daughter to take a loan at RPI + 3% interest with that gift?

Martin's government propaganda will say you might not need to pay it back etc, etc, but if you are planning to do so ( and your own words indicate you are) it means you (she) will be paying much more than if she used your gift to fund fees and maintenance up front.

Savvy_Sue

If I were in the fortunate position of being able to do this, I'd want to consider whether my dear offspring were likely to drink the lot, or would indeed save some / use it for sensible purposes.

I know that at least two of my boys have not 'needed' all the maintenance loan, because they are thrifty lads whose tastes are reasonably simple, and they worked p/t for several years before Uni and saved most of it. However, they have taken out the maximum loan possible, maxed out their student overdraft, and stuck as much as they could into the best saving rates they could find.

Once the interest free period on the overdraft ends, they pay / paid it off smart-ish. They're still left with a reasonable 'lump sum', which they can use to buy a car / put towards a house deposit / cover their 'frivolous' expenses while they start job hunting.

And until they actually start earning money, they don't have to start repaying, and they'll stop if they're ever not earning enough.

OTOH, I wouldn't trust DS3 with an extra £8000 a year, based on the number of empty bottles / tins recovered from his flat at the end of last term. [Note that he'd been hoarding the bottles all year (NO idea why!) and I don't think he has an alcohol 'problem' in that I doubt he drank all of it, and of course the other two have had the wit to dispose of their empties BEFORE I go to pick them up, BUT even so ...] And although DS3 does have a p/t job which he started before Uni, money seems to burn a hole in his pocket - and he shops at Waitrose! :rotfl: (It's next to his job ...)

It has to be a personal decision, but it strikes me that a student loan is always going to be the easiest (no questions about repayment ability!) money available, with the most favourable (no need to pay until you're earning enough!) repayment terms available.

It's up to the student who doesn't NEED the money to decide whether the potential interest repayments over the lifetime of the loan outweigh the benefits outlined above.

BTW, the OP asked about inheritance tax. I don't know if the links already given indicate that it's not an issue here, but the general advice is that if the donor survives 7 years AFTER the gift, then the gift is not considered for IHT purposes. Prior to that it's on a sliding scale. But if the estate is likely to be liable for IHT, then I'd say it was worth getting proper professional advice about mitigating the effects.

Obviously it would also be worth reading Martin's article here, and looking at the discussion thread here.

CLAPTON

while is was the general recommendation that financially it was better to take the student loan as it was only charged interest equivalent to RPI,

that is no longer generally the case as the interest charged for 2012 new students is RPI + 3 % i.e. about 6.1% at the moment

xylophone

BTW, the OP asked about inheritance tax. I don't know if the links already given indicate that it's not an issue here

Gifts that are exempt from Inheritance Tax - link cited in post 2 above.