Student Loan repayments

Spivved1987

If I repay some of my child's student loan, does it count as a taxable benefit to him?

CLAPTON

you are giving money to your child?

no tax although if he/she is not in fulltime education and the amount is over 3,000 then there may be an inheritance tax issue if you die within 7 years.

Spivved1987

Thanks. I'm fairly sure that if you loan your kids money at a less than commercial interest rate( eg 0%), the interest difference is taxable. I've no idea whether the HMRC ever actually pursues this, but I was just wondering if some similar technicality might apply with paying off a third party's loan.

CLAPTON

Spivved1987 wrote: »

Thanks. I'm fairly sure that if you loan your kids money at a less than commercial interest rate( eg 0%), the interest difference is taxable. I've no idea whether the HMRC ever actually pursues this, but I was just wondering if some similar technicality might apply with paying off a third party's loan.

no, you are totally wrong.

you can give anyone you like (including your own family) anything you like without any tax considerations except potentially IHT if you die within 7 years.


If you however, you lend some-one money and receive interest, then you (not them) will be liable for income tax on the interest received.
In practice many families consider this a private matter.

However, your paying off his loan is simply the act of you giving him money and then him paying off the loan.


I would question why you wish to do this as the interest rate on the SLC loans is pretty low (1.5%) which is less than you can get in a saving a/c.

Spivved1987

Well, it's to get a feel for my options. I am sorry if I gave the impression that I was looking to pay off the loan tomorrow.
The SLC interest rate is linked to the RPI rate is it not? I'm not sure after the next change (September?) it will be easy to get a savings account (after tax) offering a rate equal to the RPI. Also, I strongly suspect that at some point either the SLC rates will rise to match 'commercial' rates or the SLC loan book will be sold off to the private sector which will have the same effect.

CLAPTON

Spivved1987 wrote: »

Well, it's to get a feel for my options. I am sorry if I gave the impression that I was looking to pay off the loan tomorrow.
The SLC interest rate is linked to the RPI rate is it not? I'm not sure after the next change (September?) it will be easy to get a savings account (after tax) offering a rate equal to the RPI. Also, I strongly suspect that at some point either the SLC rates will rise to match 'commercial' rates or the SLC loan book will be sold off to the private sector which will have the same effect.

I'm assuming you are talking about an existing post 1998 and pre 2012 student loan?

Does your child have acces to the internet; could they not look up the rules about repayment of the loan for you?

at the moment the interet rate is 1.5% and it doesn't look like changing for some years (i.e. BoE base rate plus 1%)

there is virtually no prospect of the rate moving to commercial rates as it would be a total breach of trust and contract but if it did happen then that would be the time to decide what to do rather than now.

if you can afford to help your children in this manner maybe consider giving them a deposit for a property in due course rather than repay their very cheap and affordable SLC loan.

Spivved1987

CLAPTON wrote: »

at the moment the interet rate is 1.5% and it doesn't look like changing for some years (i.e. BoE base rate plus 1%)

there is virtually no prospect of the rate moving to commercial rates as it would be a total breach of trust and contract but if it did happen then that would be the time to decide what to do rather than now.

.

I like the thought that any politician would be moved by considerations of 'a total breach of trust and contract' !