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The cost of funding children through university can be a huge burden. 

Fortunately there are a number of ways to make it highly tax efficient.


As A-Level grades are awaited and fingers are crossed for first choice university places, it is worth considering the financial side of higher education. Although it may be tempting to shield your children from taking on their own loans, is that the best option?

large open book in a libraryPaying for tuition fees, accommodation and living expenses out of income on which tax and national insurance at rates up to 62% may have been paid requires an enormous amount of gross income - it could be more than double the actual cost! A massive price to pay for a reduction in the level of debt taken on personally by young adults.

Here are a few things to consider as you plan for your offspring to depart Lymington and the New Forest for further education.

Income Tax savings

For young people over the age of 18, the most efficient methods of providing income to fund university or college fees are those that enable the income to be taxed on the child, rather than on the highly taxed parent, making use of their personal allowance and basic rate tax bands.


Subject to complying with the regulations, a trading company may be able to sponsor university attendance. The cost would then be totally tax deductible.

notes macbook study conferenceProperty planning

Increasingly, parents are purchasing property for their children to live in whilst at university. It is important to look at all the ownership options available to ensure maximum post-tax efficiency, in terms of the investment return, where rents are received, and on a future sale.

Income from renting the property to other students can be used to fund education fees, but correctly structuring the ownership of the property is critical to ensure that income is not paid to a highly taxed parent, as well as maximising capital gains tax exemptions on sale.

Transferring the right to receive some or all of the rent from an investment property to the student would enable the rent to be directly taxed on the student, allowing an offset of the tax free personal allowance (£11,500 for Tax Year 2017/18) and utilising the basic rate band at 20%. The student must be aged over 18 for this to be tax effective.


If the student holds some shares in a family company then dividends can be paid to utilise the basic rate of income tax band and the tax free dividend allowance (£5,000 for Tax Year 2017/18).

Grandparents: IHT planning

Of course, the most financially effective way to fund a student’s attendance at university is to persuade a grandparent to pay! Increasingly grandparents are assisting their grandchildren’s future education. Structuring gifts in the correct way can benefit inheritance tax (IHT) planning.

These are just a few ideas on how to reduce the after tax cost of university education. There may other options available to you, according to your individual circumstances. New Forest Tax Accountants have extensive experience in all areas of tax and accountancy and offer a FREE initial consultation.


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© New Forest Tax Accountants 2017.

The information in this communication does not constitute individual advice. New Forest Tax Accountants will not accept any responsibility for decisions taken or not taken on the basis of the information presented here. Before taking any action, including no action, always obtain independent, professional advice relevant to your own circumstances – preferably in writing. Any reference to legislation and tax is only based on published legislation and standards at the time this communication was published.