University fees and tax...

It's that time of year again when children are leaving the bosom of the family home and venturing off into the wider world for the next stage of their educational careers, and with the changes to university fees over the last few years that is becoming a more and more expensive endeavour for students and their family's. So, if I told you there was a more tax efficient way in which these costs could be met you'd be interested right?

Fortunately there is, and it's not complicated, or morally abhorrent in the eye's of HMRC either! However, unfortunately it's not something that all of us can do as the first requirement is for you hold shares in your own, or perhaps the family business. So for those of us who are employees (like me) this is a no go zone, but for many business owners (from those operating from their kitchen tables right up to those with multi-million turnovers) there is a solution, and it's all to do with shares.

The premise is fairly simple, as if you are taking additional dividend income from your company to meet the fees that university is charging your son or daughter then you have to pay tax on that. For most that will mean paying around 25% of the net dividend to the tax man, so to get £9,000 you have to extract £12,000. This means that you're actually paying tax to educate your children! So, how do we save that tax then?

Well, and we're making a large presumption here, your average student who is being supported by their family doesn't work whilst at university (by which I mean have a tax paying job), so their tax free personal allowance of £10,000 each year is being wasted. Yes, that's right over an average course £30,000 of tax free cash is being lost and you're not taking advantage of that.

Hopefully you've already guessed at where this is leading to, and yes you'd be right, but how do we make giving shares to our children from the family business safe? Well, that is possible with the use of trusts and other such vehicles to ensure that the funds/shares cannot be abused. There are also tax consequences that you'll need to be aware of, but provided your child isn't working you should be able to pay each year's university fees TAX FREE!

If this is of interest to you, and you want to learn more contact me at Haines Watts Chartered Accountants (the web-link is on the bar above).