By James Fraser, Tax Partner, Armstrong Watson LLP

GOING to university and getting that first taste of independence is an exciting step for students. There’s a lot to consider and parents may of course wish to support their children financially where possible.

Here are three tax planning points to be aware of if you have a child at university.

Income Tax

Many believe that students are exempt from paying tax; this is not the case. However, every individual can earn up to the personal allowance, currently, £12,570 per year, before tax needs to be deducted.

Should a student work only during the holidays, an incorrect tax code may result in Income Tax being deducted from their earnings. In this case, a tax repayment claim, form R40, can be submitted after the year-end to reclaim any overpaid tax.

Funding

You may wish to provide your child with an income so they will not need to work or take out a loan while they are at university. Usually, this income is paid out of your net income i.e. after tax.

However, if you own some income-producing assets, such as a share of the family company or investments, it may be possible to transfer these assets into trust for the benefit of your children, who are over 18. Structured correctly, this could allow any income received on these assets to be passed directly to your children, making use of their personal allowance and, potentially, their basic rate band in order to reduce the tax burden, on you, of this income.

Accommodation

You may consider purchasing a property for your child to live in while at university. The tax implications of this are if you are purchasing in your name, the three per cent Stamp Duty Land Tax second property surcharge is likely to apply. In addition, on sale of the property Capital Gains Tax would be due on any increase in value.

Purchasing the property in your child’s name would prevent this but would involve giving away the capital and your child would then be able to sell the property should they wish.

We can assist you in setting up a trust to allow you to structure the purchase in such a way as to get the best of both worlds; allowing you to retain control over the property while being able to benefit from the reliefs available to your child.

For advice and support please contact our personal and wealth tax team on 0808 144 5575 or email help@armstrongwatson.co.uk