Grandparents get top marks

Grandparents can make a real difference to their grandchildren’s futures by helping with the costs of education. With the cost of a 3-year university course topping £50k*, many students are starting work with large debts, or worse, could be put off going altogether.

Grandparents need not feel concerned about handing large sums to their grandchildren at a young and impressionable age. Using an appropriate structure to hold their gifts, they can combine the necessary control with a tax efficient solution to meet some or all of these education costs.

The satisfaction of giving
Many grandparents often leave money in their wills for their grandchildren. However, by making a gift during their lifetime, they can get to see the benefit it has to their family on many different levels:

• They will have played their part in their grandchildren’s futures;
• A financial burden on their own children will have been be lifted; and
• At a personal level, they may have made significant inheritance tax savings.
• The amounts for university can be substantial, particularly where there are several grandchildren. However, those grandparents who are willing and able to make such a financial commitment can obtain sufficient control over who benefits and when.

Control over gifts
Concerns about giving grandchildren too much too soon may rule out outright gifts, so by using an appropriate trust structure, those fears may be eased and provide grandparents with the control they seek. Trusts are typically flexible enough to allow any future grandchildren to also benefit. But they’re not able to invest in Premium Bonds and Junior ISAs as these can’t be held in trust.

Tax efficient investment
Control normally comes at a price, but with the right advice, that need not be the case. With advice on a suitable structure to hold the funds in, it is possible to ensure that there is no UK tax on income and gains, and any tax calculation is deferred until money is withdrawn. This can have the added benefit of not needing to file trust tax returns, providing potentially additional savings.

When funds are withdrawn, it is a simple matter of assigning the required level of funds to the grandchild (assuming they pay no or little tax), who will then be taxed on the subsequent surrender.

However, because grandchildren are unlikely to have much income as students, they will have unused tax allowances to cover any profit, which helps to mitigate a substantial, if not all the profit on any investment returns or fund gains.

School fees
If funds are needed to pay for private school fees before the child reaches 18, through a typical grandparent / grandchild trust structure, funds could be paid in the required amount from the underlying funds. The profits will then be assessed on the child, using the child’s tax allowances, so again, this is a very tax efficient method of structuring this gifting.

The cost of an education
The average fee for a private day school is around £15,000 a year and boarding school is nearly twice this (Independent Schools Council Census and Annual Report 2016).

* The price of a university education in England adds up to around £54,000 for a 3-year course at an English University taking into account fees, average living and accommodation costs (Student Money Survey 2016).

With such high costs, taking action at the earliest possible time means that any investment growth can play a bigger part in meeting these costs. From the grandparent’s perspective, any gift will be outside their taxable estate much sooner.

Taking professional advice
Like all investments, with school and university fee planning, investment returns are not guaranteed. The value of any investments can go down as well as up and you may get back less than you invested. It might not be enough to cover the fees when the time comes to actually pay them.

To ensure that you are comfortable with the risks and the characteristics of investing for your grandchild’s future, we strongly recommend that you obtain independent financial advice. We are on hand to help guide and advise you through the various options and to recommend a course of action that is suitable for you and those you want to help.

For advice related to your specific circumstances, please contact us on 01626 833225 or email [email protected]

Important Information
The views and opinions contained herein are those of Loughtons Independent Financial Advisers and may not necessarily represent views expressed or reflected in other communications.

This document is intended to be for information purposes only and it is not intended as promotional material in any respect. The material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The material is not intended to provide, and should not be relied on for, accounting, legal or tax advice, or investment recommendations. Information herein is believed to be reliable but Loughtons Independent Financial Advisers does not warrant its completeness or accuracy. No responsibility can be accepted for errors of fact or opinion. This does not exclude or restrict any duty or liability that Loughtons Independent Financial Advisers has to its customers under the Financial Services and Markets Act 2000 (as amended from time to time) or any other regulatory system.

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