Paying off student loan - tax query

Moots2024

To pay off my daughter's student load will require a payment of circa £36k. My wife and and I are considering paying off the loan. We are in a strong cash position. I feel pretty well versed in the principle arguments for and against doing this and am not seeking any advice on those from this post. We will still be looking at those.

My query is what if any tax implications there might be for any of us (me, my wife, our daughter) if we were to decide to go ahead with repayment.

My wife is concerned that our paying off the loan might be treated as income to my daughter and that she would be liable to pay income tax on the £36k - I doubt that. However, I am not clear whether or not there would be any tax implications for my wife and/or I.

For example, will there be Inheritance Tax implications? I have stage 4 lymphoma cancer which is incurable. Things are very comfortable at present and my prognosis is currently positive. I guess however there has to be a higher than normal(whatever that is) chance that I will die within the next seven years. 

Would be grateful for any pointers.

Flugelhorn

Firstly the money would be a gift and not income for your daughter so she would not be liable to pay tax

Secondly - are you likely to be in IHT territory? bearing in mind I suspect that much of what you have would be jointly owned with your wife and therefore directly inherited by her - am sure someone else can explain the figures here rather better

If you were liable from your personal assets then the money would be a gift but the amount of tax that your estate pays (not your daughter) would be no more if you had given her the money as opposed to keeping it in the bank 

silvercar

Definitely not income for your daughter, she is being gifted the money not earning it. In any case, I assume you would pay the. Student loan company direct and therefore there are no inheritance tax implications.

If you gave the money to your daughter and she paid it off, then it would be a potential exempt gift to her. £3000 exempt for this year, £3000 carried forward from last year, the rest could form part of your estate. But you would be in no worse position than if you had kept the money. Potential exempt gifts are where you are exempt once you survive 7 years from the date of gift.

mybestattempt

silvercar said:

Definitely not income for your daughter, she is being gifted the money not earning it. In any case, I assume you would pay the. Student loan company direct and therefore there are no inheritance tax implications.

I'm not sure why paying the SLC direct prevents this from being a gift  for IHT purposes.

The only references I have found so far, although I'm still searching, seem to suggest paying off another person's debt is a gift by the person paying it when it's paid directly to the creditor.

Flugelhorn

silvercar said:

In any case, I assume you would pay the. Student loan company direct and therefore there are no inheritance tax implications.

Is this so? 
Would be nice if it was the case, I'll pay my kids' loans tomorrow 

Moots2024

Thank you everyone for your help.

I hope to live for well in excess of seven more years (I am currently 63) but as I mentioned my cancer puts me at greater risk than my wife of death within seven years. From what has been said here it strikes me that it might be wise for the loan to be paid off by my wife rather than me or by both of us jointly. Doe that make sense? 

silvercar

[Deleted User] said:

silvercar said:

Definitely not income for your daughter, she is being gifted the money not earning it. In any case, I assume you would pay the. Student loan company direct and therefore there are no inheritance tax implications.

That is not correct. 

It would be a PET since it is a gift to the OP's daughter (as it reduces her loan with the SLC).  If you had a settled pattern of making such gifts and had sufficient income then it might be possible that the 'normal expenditure out of income' exemption might apply.

Really? Does that mean paying your child’s school fees counts as a gift to the child? Student loans are just an alternative way of paying tuition fees and maintenance, which presumably any parent could choose to do without it being counted as a gift. If you are going to argue a child’s education is the responsibility of the parent, then sixth form fees could be a gift as the offspring would be over 16 and making a choice to stay in education.

Flugelhorn

silvercar said:

[Deleted User] said:

silvercar said:

Definitely not income for your daughter, she is being gifted the money not earning it. In any case, I assume you would pay the. Student loan company direct and therefore there are no inheritance tax implications.

That is not correct. 

It would be a PET since it is a gift to the OP's daughter (as it reduces her loan with the SLC).  If you had a settled pattern of making such gifts and had sufficient income then it might be possible that the 'normal expenditure out of income' exemption might apply.

Really? Does that mean paying your child’s school fees counts as a gift to the child? Student loans are just an alternative way of paying tuition fees and maintenance, which presumably any parent could choose to do without it being counted as a gift. If you are going to argue a child’s education is the responsibility of the parent, then sixth form fees could be a gift as the offspring would be over 16 and making a choice to stay in education.

I had a look at this https://www.wake-smith.co.uk/advice-centre/estate-planning/probate-estate-planning/How-to-help-financially-support-children-and-grandchildren-through-university
think this may come down to paying for children's education, while they are in full time education, is not considered a gift - many people pay uni accommodation costs directly etc - but  paying off a student loan happens at a time when they are no longer full time students ?