Inheritance and Student Loan Repayments

norm27

Hello. The internet, including this Forum, advises that students can receive inheritance without it affecting their loan as such money is not regarded as earned income for loan repayment purposes. I have a disabled son who has an outstanding student loan of currently £30k not due to be written off until 2039 but is unlikely ever to work again and pay it off.

I am anxious to ensure with 100% certainty that the inheritance I leave him will not be taken for payment of the student loan so 3 months ago I wrote to HMRC and Student Loans so that I could get confirmation of the position from an official source.

HMRC have neither acknowledged nor replied but Student Loans have replied

" Some customers may ask if inheritance they receive will be subject to student loan repayments. If the customer was Self Assessed then any monies over £3,000 would have to be declared as income. Whether this is eligible for student loan deductions would depend on how the Self Assessment Tax Return was completed. If it was down as Trusts and Beneficiaries then this would be eligible to be counted. For any further enquiries regarding this the customer should contact HMRC".

My son is in the Self Assessed category and my savings are held in Trust for my son so what Student Loans have said now concerns me and I feel I need to investigate this further. At some point I might have to ring HMRC but before I do I would like to ask if anyone on this Forum can point me in the direction of any official documents such as legislation, HMRC advice notes that might help me research and clarify things.

Any help would be appreciated.

Thankyou.

teaselMay

There is a mechanism to have the loan written off if he's permanently unfit to work

https://www.gov.uk/guidance/student-loan-cancellation-permanently-unfit-to-work

Keep_pedalling

Regardless of the student loan issue it might be wise to leave any inheritance to you son in trust rather than an absolute bequest. Unlike most discretionary trusts those for disabled beneficiaries are treated more favourably for tax purposes.

norm27

Thanks for taking the time to reply with this info. I'll keep investigating.

Sunny_Disposition2

Hello All. This information is useful, but I have a similar question.

My son recently graduated from university with a Plan 2 student debt of nearly £70,000 (not including interest).

He is currently unemployed and living in my home, but searching for work. When he does find work, he is unlikely to earn more than £25,000 per year (at minimum wage).

I am getting married next year and moving in with my future spouse. Before the wedding, I would like to gift my home to my son, but I am worried that it could be counted as an asset that could be used to guarantee repayment of his student loans. I don't want him to become homeless, so could he ever be forced to sell it just to repay the debt in future?

Thank you in advance.

silvercar

https://forums.moneysavingexpert.com/discussion/comment/82161236#Comment_82161236

A gift of a home would be capital not income, so the gift itself shouldn't trigger any student loan repayment. The only time I would consider it at risk is if he fell behind with any loan payments that were due and he became embroiled in a legal pursuit of the debt. In theory that could end up in court and a charge registered on the house. The other situation would be if he rented out the house or took a lodger, then the rental income would be part of his income and student loan repayments assessed on it.

While he is living in what will be his own home, it wouldn't be considered for any benefits he may be entitled to. Be aware that the gift has a value and that would be a Potentially Exempt Transfer if you sadly passed away within 7 years.

Ed-1

https://forums.moneysavingexpert.com/discussion/comment/82161236#Comment_82161236

One correction is the income threshold for Plan 2 is £29,385.

£25,000 is the threshold for Plan 5.

Sunny_Disposition2

Thank you Silvercar and Ed-1. This info is very useful. I will take it into consideration.