Question for those who are paying fees upfront (or considering it)

[studfin]

I've namechanged for this, as I know that threads about money can be sensitive. And I want to say from the start that I know how incredibly lucky we are to be in this position. This isn't a stealth boast thread - I'm genuinely unsure what to do and interested to hear from any others in the same position.

Basically, due to a combination of fairly high earnings and inheritance, we have the option of paying the DCs' tuition fees and maintenance costs without loans. This won't have an impact on our daily life, and we would still be able to help DC with a house deposit when the time comes. We've already basically decided to fund their uni accommodation and living costs without them taking maintenance loans (they both have pretty low key lifestyles, so we wont be bankrolling high end living), but can't decide re tuition fee loans. Partly it's a financial question re interest etc. Martin Lewis says it's usually better to put the money in a high interest account and pay off the loan later once your child needs to start paying it off, but I don't know whether that factors in tax on savings interest (we're both HR taxpayers, and use ISA allowances already for our own savings). Partly it's a financial responsibility question - in that, do I risk my DC placing less value on their education because there's no financial investment on their part?

If I pay it for them upfront, part of me feels guilty for perpetuating inherited privilege, the other part thinks that, given the state of the jobs market and the uncertainty of the future, I should be making their lives easier in every way I can. I went to uni back when it was free, and my parents paid for my accommodation, so I'm also very aware that I had this privilege myself (I did take out maintenance loans, but they were pretty small really).

Haa anyone else made this decision?

Goodness - that 71% from £100k to £125k seems eye-watering! Presumably that is because of the increased marginal tax rate due to progressive loss of personal allowance between £100k and £125k..?

There was an interesting BBC Briefing Room programme (available as a podcast) on UK youth unemployment recently. I was pleasantly surprised by the prospects for graduates. My take away was that the risks of AI are not as great as many fear.

https://www.bbc.com/audio/play/m002t2vv

Thanks for sharing that, I'll have a listen. I really hope this is the case, I'm just feeling quite bearish about it right now. I work in the tech industry and my job is now entirely focussed on AI enablement of our legacy SaaS tech. I'm really alarmed at what is happening and the rate at which it is happening. We've already cut staff and frozen hiring as a direct result of AI efficiency - and this is at a time of growth.

I don't want to derail the thread though, obviously this is a whole subject in its own right.

@MamblesPambles I don’t think it counts from what I can see. It’s simply a gift. It’s not listed as annual gifts and marriage gifts are. I’ve never seen this as an ongoing IHT exemption for “education”. You get your £3000 a year per child.

There was widespread misreporting of this Government report in 2023: https://assets.publishing.service.gov.uk/media/656856b8cc1ec500138eef49/Gov.UKImpactofAIonUKJobsandTraining.pdf

Many commentators in the media (and here on mumsnet) read "impact" as a negative, completely missing this disclaimer: "The analysis measures the exposure of jobs to AI, rather than distinguishing whether a job will be augmented (aided) or replaced (substituted) by AI."

Many jobs will be augmented by AI, and there will be many new jobs for people developing the AI tools. A senior leader from PWC was quoted in the FT last week talking about how they are working to automate many of the routine tasks previously done by new graduates, but in practice that means they are employing more engineers to work on building and maintaining the automations. More engineers, fewer accountants.

The reason they are doing that is because they think new customers will want to buy a cheaper PWC branded AI product rather than paying premium prices for their people. Time will tell if that's right - it will depend on the quality of the product, not just the name.

Thank you, that makes sense. Sounds like it's better to just gift them the money then. Personally it just feels easier rather than the hassle of putting it into high interest saving accounts or stocks and shares. @NotDonna Does anyone know if you can just pay the uni fees directly or if it needs to be declared to the HMRC? I feel no guilt helping my children out and we have paid our mortgage off thankfully. My parents never did this for me but university was free then so I was in a very different position.

We have started to think about this.

For me I think it will depend on DC and what they are going to study etc

If they are going for degrees and careers where they would almost certainly pay off the loans in full, yes we would consider paying the tuition fees up front. If they were doing degrees that are likely to be low wage, it is less likely to be worth it

@Fabfabfab@spellbouwned Is this once a loan has been taken, or paying upfront? We haven’t been declaring anything to HMRC (we are currently paying for fees / accommodation/ living costs), but (if your estate is likely to be subject to IHT) then it is probably a good idea to just keep a spreadsheet of all of the sums paid, to whom, and when, as if a parent dies within 7 years of this, then there will need to be an evaluation of what is exempt and what is not, and if you are paying the uni fees directly to the uni, then it may not be clear on your bank statement what this is for. (My son’s uni have changed the arrangement this year, i think to crack down on possible money laundering? And where previously you could just do a bank transfer, now you have to pay through some third-party portal, which is called something slightly random).

Thanks - I suspected this was the case. We are paying upfront, making regular payments, from income, so hope to avoid IHT liability for this.

I keep receipts - in case they are needed.

I've done a probate application in the past (for my mum) and we self-declared gifts that were potentially liable for IHT, not gifts that weren't liable. We would have only needed the documentary evidence (bank statements, receipts etc) if the probate claim was audited.

So the fuller answer to "do you need to tell HMRC" is "only if you die within 7 years and, even then, only if your probate accounts are selected for auditing"

One just graduated, one left at uni. We had to pay from income rather than savings; it has been a squeeze but a decision we made to fund all their costs. They are hardworking and grateful, no regrets.

Really useful information. I'm still in my 40s with no plans to pop my clogs quite yet but you never know and it's never too early to be thinking about this I guess.

Just correcting something I posted earlier. Payments of university fees are exempt from IHT if they qualify as ‘normal expenditure out of income’ under IHTA 1984 s.21.

My eldest is a couple of years away from starting university and is still deciding between a vocational path and an academic one. Luckily, there’s a university nearby and another within an easy train ride, so if he chooses the academic route, he’ll attend one of them, live at home, and we’ll cover most of the costs, including tuition. He can still join clubs, societies, and enjoy campus life while living at home—we see it much like a private day school. If he goes for vocational courses, there are local colleges close by.

Some say staying at home means he won’t grow up, but that’s such an outdated mindset. These days, you don’t need to move out to gain life skills or handle challenges. He’s learning to enjoy life in his own way, without chasing trends or worrying about others’ opinions. He’s also figuring out how to manage his money, boost his income, cut out unnecessary expenses, and most importantly, stay free from debt.

We were fortunate to be able to do this and fund a house deposit. We paid the fees direct to the university on an instalment plan (was like a continuation of school fees) and have not told HMRC. We paid her rent directly and transferred a monthly allowance for living costs. She worked to top this up. DD graduated 2 years ago with one of those much derided MFL degrees. Despite starting on a lowish salary she now earns enough that she’d be repaying approx. £500pcm. Even on her excellent salary that would be a big hit after pension payments.

We have paid/are paying ours too. Slightly different in that we don't necessarily have huge house deposits to give them - but we have encouraged them to save any money earned from jobs/scholarships/internships into a LISA for a house deposit. So that is within their control, e.g. how much extra they earn and what they can/want to save.

Psychologically paying upfront hasn't made them feel less invested - if anything, they know this is a sacrifice for us (no inheritances at all) so it's all hard earned cash for us and they are super keen not to let us down and fully understand and are reminded regularly how privileged they are. Also we made it clear that we only pay once - if they drop out/repeat/mess around they will have to take loans out. Luckily this hasn't happened yet. (we have 4 of them and are only half way through).

All the kids are fully aware they will have to come home and look for a job and they also hope to be able to live at home for a bit and save for their future, if they are lucky enough to get a job within commuting distance.

Hope this helps in your decision making. But it's a yes here.

Also we made it clear that we only pay once - if they drop out/repeat/mess around they will have to take loans out.

One hopes that none will need to find this out, but the formula for funding is Length of current course (new course, if having dropped out previously), plus one year, minus years of previous study. With a year started counting as a whole year, for this purpose, unless the reason was accepted as being 'compelling', e.g. serious illness; also it's 'years of study', not 'years of loans taken'. So if they drop out at any point past the end of the first year, they will not be entitled to loans for all years of the new course (the earliest year/s having to be self funded).

Dh and I started our family in our mid 20’s so were at the peak of our careers. Mortgage paid off.
We paid for the trio’s uni/college education.
Debt adverse and didn’t want them starting life with a loan. Zero regrets and ideally we hope to do the same for the grand kids.

@spellbouwnedI’m in a similar position. My Dad and your Mum would have shared the same outlook on this. The fact he will miss out on their graduation days is so painful. He’d have been so proud, as he was on mine. He’d have definitely approved of me using some of his money to help them. That’s why he saved for them when he was alive. The emotive argument should definitely have a place on the list of pros.

@pastaandpestoas I said up thread I have another four years to make this decision. I’m really interested in your perspective as you’re going against the theme of most responses. You say you are confident that you can stay ahead of loan interest despite keeping things liquid. Does that account for tax? I’ve used all my ISA allowances so if I kept this money in an account I’d pay 40% on the interest which would put me behind loan interest. With the way this government taxes anything that moves paying up front for university has the attraction I can’t be taxed on it!

@Travelban Where they need to live and the cost of housing isn’t in their control though. Not enough jobs in cheap areas (sounds like their savings won’t be huge) could be a factor. I’d not think £45,000 minimum to each is not a great use of limited funds. A better loan/value ratio might have been,

We made this decision jointly and we are all happy with it, so that's what matters. I am sure it has downsides as having huge student loans though. We are very happy with our decision and so are my kids - no regrets.

I’m not clear what you are saying @OhDear111 - gifts for education ARE exempt from IHT. Hence why g’parents pay school fees rather than give to parents directly. Any money you use to pay for your own child’s education whether that be school fees or university is exempt. There’s a clause about education and IHT exemption.

@Fabfabfab you could either give your DC the money three times a year (or all of it to pop in a high interest savings account) and they then pay the University 3x a year - universities invoice in Oct/Nov; Jan/Feb; April/May. Or you could pay the account directly from your own funds - it’s online - using DC’s student number etc. Same applies for costs for 1st year uni halls. Three times a year via your DCs student account. HMRC aren’t involved whatsoever.