National IFA firm Continuum warns that those looking to help family members meet the growing cost of further education need to plan ahead to avoid tax pitfalls.

by | Sep 17, 2022

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As universities return across the UK, more UK investors are financing further education for future generations than ever before. National IFA firm Continuum warns that those looking to help family members meet the growing cost of further education need to plan ahead to avoid tax pitfalls.

The latest data released by the House of Commons on student loans in July showed that currently almost £20bn is loaned to around 1.5m higher educational students every year, with an average debt among borrowers who started their course in 2021/22 reaching £45,800 by the time their course ends.

As the cost of further education and student debt grows, many older family members are prioritising funding further education for their children and grandchildren to give them a boost onto their chosen career path.

However, according to national IFA firm Continuum, it is important for those looking to help fund further education for younger generations that they make sure to plan ahead, consider the impact on their own finances, and make sure they choose the most appropriate investments whilst avoiding any tax pitfalls.

Ben Alcock, Chartered Financial Planner at Continuum, said: “The ongoing cost-of-living crisis can make the future seem uncertain for younger generations. But the outlook does not have to be bleak.

“If they were able to receive support with the initial challenges of financing further education from parents or grandparents, the next generation might still be able to look forward to security and prosperity in the career of their choice.

“The good news is that with careful investment, even relatively modest sums can make a difference to their future, especially when planning ahead.

“The first step is to get your own finances in order, then when you know the spare resources you have to call on, you can start planning on how best to use them.”

There are several different routes through which older generations can help finance further education for their children and grandchildren.

An ISA could provide a simple way to invest, with all the proceeds going to them rather than the taxman, and would offer flexibility as to when and how to utilise the funds in helping fund the cost of higher education.

A Junior ISA lets you invest on their behalf. Parents or guardians with parental responsibility can open a Junior ISA and manage the account, but the money belongs to the child.

The child can take control of the account when they’re 16 but cannot withdraw the money until they turn 18. Anyone can contribute in each tax year towards the annual allowance, which for 2022/23 is £9000 .

Traditional savings accounts can also provide a simple solution to saving towards further education for future generations. However, in the current economic climate, even with preferential rates, they are not much more rewarding than a piggybank.

Whilst the Bank of England is continuing to raise interest rates, allowing high street savings providers to hike the rates they offer, they are still unlikely to compare with the loss of purchasing power caused by inflation.

 

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