[ad_1]
However, with interest rates currently high parents could be better off investing the money or putting it into a savings account for their child to use at a later date. For example, as a downpayment on a house.
“Saving in an Isa, even if the funds ultimately are for your child, would mean that you as a parent would retain complete control over the finances including the timing of any withdrawals,” said Emma Watson, Head of Financial Planning at Rathbones Group.
You can save up to £20,000 into an Isa in each tax year – using the maximum allowance each year your child is in university would give a £60,000 lump sum by the time most students finish an undergraduate course – and that’s before adding in returns.
Alternatively, you could take the full tuition fee lump sum, around £50,000, and invest it on your child’s behalf. According to figures from AJ Bell, you would have a pot worth £352,000 after 40 years after making no further contributions – when your child may be looking to retire – assuming growth of 5pc a year after charges.
Investing the £50,000 lump sum for 10 years, until your child reaches their early thirties may want to buy a house, would mean you could contribute £81,500 towards their purchase, assuming that same 5pc a year growth.
Now read: How student loans work (and why paying it off could be a bad idea)
Should you pay for student living costs?
While a full tuition fee loan is available to all undergraduate students, maintenance payments are managed differently.
Students are entitled to borrow up to £9,978 in maintenance loans if they are living away from home outside of London and £13,022 for those living in the city. However, how much individuals are entitled to depends on their household income.
As a result, parents on higher incomes are expected to supplement their children’s living costs throughout their studies. While many may choose to fully cover the costs, there’s an argument that university is a key opportunity for students to have experience managing their own budget and learning some financial discipline before they graduate.
“Even if you are helping your child with some living expenses, encouraging them to take some responsibility through part time work is a great way to understand the value of money. With the cost of living biting hard, it’s likely they will need some sort of help with day-to-day costs and it’s useful to make provision for that if you’re able,” said Ms Rimmer.
“University can act as a soft launch pad into adulthood and learning how to handle your finances properly can be a part of it,” she added.
Some parents may therefore opt for a part-funded role, perhaps where their child contributes to their own living costs by getting a part-time job.
Now read: How parents can cut their child’s university costs (without paying for everything)
Is buying a property for your child to live in a good investment?
Accommodation is always a significant factor in any student’s budget.
The average amount students pay for rent in the UK is £535 per month, according to Save the Student’s National Student Accommodation Survey.
But the average maintenance loan is just £485 per month, leaving a clear deficit.
So is it worth buying a property for your child and their friends to live in during their studies, rather than lining a landlord’s pocket?
If you plan to buy a property and charge the tenants rent, a key consideration will be how this changes your income tax position, said Ms Rimmer, as it may put you into a higher tax bracket.
“Further, if you intend to sell the purchase when your child has left university, any increase in the value of the property will be liable to capital gains tax which for higher rate taxpayers is 28pc.
“You may struggle to sell the property in a downward market and it’s important to consider the illiquid nature of property and ensure you have other accessible assets elsewhere should you need them,” she said.
[ad_2]