IHT - parent paying University Fees directly - still a gift to child?

RNV

Hello,

We have been saving in childrens JiSAs £9k/year with a view that they can use the money for University costs (if they decide to go). It is clear that £3k is exempt and £6k is subject to 7 year rule.

However, as an alternative, if a parent pays university fees directly - is this still considered a gift to child subject to same 7 year rule?

With SIPPs included, we are deeply inside IHT, so just trying to think ahead how best to structure gifts.

Thanks.

Grumpy_chap

What age range are you?

Do you have any specific reason to believe that you will not survive your children completing University by 7 years?

Regardless, IHT can never increase by making gifts. Your best route is probably to just support your children to the best of your ability and let everything else sort itself out. Most parents with children of standard University age would reasonably expect in the normal course of events to survive the 7 years and a good deal more.

eskbanker

For IHT purposes, the definition is:

“gift”, in relation to any transfer of value, means the benefit of any disposition or rule of law by which, on the making of the transfer, any property becomes (or would but for any abatement become) the property of any person or applicable for any purpose

https://www.legislation.gov.uk/ukpga/1984/51/section/42

so funding services (rather than passing 'property', which would presumably include cash, goods, etc) for dependents wouldn't seem to qualify.

mybestattempt

https://forums.moneysavingexpert.com/discussion/6654443/iht-parent-paying-university-fees-directly-still-a-gift-to-child

Payment of university fees by a parent would be an exempt gift (disposition):

https://www.gov.uk/hmrc-internal-manuals/inheritance-tax-manual/ihtm04171

https://www.gov.uk/hmrc-internal-manuals/inheritance-tax-manual/ihtm04175

RNV

Thank you all!

Need to read through the linked docs properly. On a quick scroll, this may be smth to explore. I was always sceptical a student loan for decades was a good idea (assuming you/parents can cover the costs otherwie) and recent revelations just cemented it for me. We will be helping them with that anyway, might as well try to arrange it the most IHT friendly way.

No reason to expect our depatrure within 7 years other than suddenly multiple cases of early deaths after a short ilness early/mid sixties in our wide circle… Made you think a long tomorrow is not guaranteed… Im 53

silvercar

Tuition fees and maintenance would be exempt under those manuals linked above.

Also, if you have been saving out of excess income, without it impacting on your lifestyle, that would be a different but also allowable exemption.

It’s interesting that paying tuition fees direct is exempt but clearing a student loan after university wouldn’t be..logically I would wait until a career is started before making a decision on clearing a loan; at this then you have a better idea of whether they will earn sufficiently that they will actually repay their loan, otherwise you are just gifting to the government.

I’d also make the point that it is worth thinking whether the money spent on tuition fees and maintenance would not be more appreciated by gifting a deposit to buy a home or by a pension contribution.

Albermarle

It’s interesting that paying tuition fees direct is exempt but clearing a student loan after university wouldn’t be.

I was going to read through the links about this very topic, but you have already answered it. Thanks !

I would wait until a career is started before making a decision on clearing a loan; at this then you have a better idea of whether they will earn sufficiently that they will actually repay their loan, otherwise you are just gifting to the government.

For this reason I was not 100% sure whether it was a good idea, even if it was a potential way to save IHT ( which apparently it is not). My daughter has a good job, but not a high earner. She pays some student loan off each month, but not a huge amount. So its a bit 50:50.

I’d also make the point that it is worth thinking whether the money spent on tuition fees and maintenance would not be more appreciated by gifting a deposit to buy a home or by a pension contribution.

Not sure your average twenty something ( or even 30 something) would be that bothered about a pension contribution, but for sure help with a house deposit would normally be very welcome.

Albermarle

https://forums.moneysavingexpert.com/discussion/comment/81876371#Comment_81876371

No reason to expect our depatrure within 7 years other than suddenly multiple cases of early deaths after a short ilness early/mid sixties in our wide circle… Made you think a long tomorrow is not guaranteed… Im 53

Nothing is guaranteed but statistically the % chance of you dying before 60 is around 1%, and you have a 25% chance of reaching your 90's.

On average you should be alive for another 30 years, by which time no doubt the rules and IHT will have changed numerous times, and you will have had plenty of time to spend it !

RNV

Thanks for all the comments.

Gift from surplus income - have studied the criteria and no, we will not pass; there is a mix of regular income and capital spend involved;

Pensions - thought about but dismissed the idea as far too long to tie the money for; will be helping them otherwise.

Student loans – we spoke a lot about it with DH. We still have got a few years until the decision will need to be made but so far both of us have got the same strong feeling that the weight of an ever increasing debt (even if you never pay it back) can be mentally damaging. Currently, not miles more above the min wage and you already start paying and will be for the entire working life. And especially if on a modest wage, those “9% above “ are better in their pockets… Unless some totally different mechanism is introduced for student loans repayment; we will be aiming to avoid any loans and pay for fees directly.

House deposits – yes all goes well, we are planning to help with those as well. DH is an accidental landlord. Far from a mansion but when sold, hopefully will be enough for two modest deposits.

Thanks again.