Inheritance tax - university funding

[Anon42anon]

I wondered how money given to our YP is taken into consideration for inheritance tax. I understand that you can give £3000 a year to one person without paying it but many of us will be giving much more.

if for example I gave my son £30,000 in September and said it was for his four years living expenses would this lump sum then be included in any IH calculation if I dropped dead in three Years time?

the government expects parents to top up so I wondered if there was any specific exemption?

thanks for any thoughts.

You could give gifts from surplus income to avoid IHT. But it would need to be from income, not capital and a regular amount eg grandparents paying school fees.
I don’t think a 30k lump sum would meet the criteria.

Form IHT 400 would require details of annual expenditure to prove that the gift (It’s Really financial support, rather than a gift) was indeed from excess income .

so I wondered if there was any specific exemption?

No.

Regular gifts out of income would be, but a one-off lump sum clearly isn't a regular gift out of income.

Gifts from income are fine. So if your monthly income allows, you’d be better with a monthly standing order than a one-off lump sum I suspect

What would happen if they take out a loan, then you pay the loan off, effectively paying the government rather than the child? Would that affect IHT?

Thanks for all your posts. The government says I have to top up the student loan (we get minimum) and so for London it works out at about £8k. I can’t give that out of regular income as I am not working, although my partner is but we have separate finances. . But I have savings. So potentially it could be considered for inheritance tax as it’s over 3k a year.

Is your estate over the IHT threshold?

IHT is paid from the residual where at all possible, so if £3k of iht was nominally due on a gift to a child and £300k of IHT was due on the rest of the estate as a whole, then the £303k would be paid from the assets on hand rather than £3k being clawed back from the child.

I would make the gift. You can’t be in a worse position for doing so, only neutral (or better, if you survive)

I think as she is still in full time education any and all monetary support is disregarded for tax purposes.

We are retired so the money we give DD is by necessity savings. No income. She is getting about £10k a year.

Thanks. That’s what I was hoping. Surely as long as it’s a reasonable amount. And those who go to London do need £10k top up.

I think as she is still in full time education any and all monetary support is disregarded for tax purposes.

Based on which legislation?

Can you pay for the accommodation directly if you are that worried?
It's not a gift. You are supporting your child and helping them out with their living expenses. They are financially supported by you as they are in full time education.

Conversely, parents do not pay income tax/declare it when adult children pay board. Its a contribution towards the households costs.

I don't know the answer on the parental contribution and would be interested in what the position is here. But OP, I would think that parental contributions would be paid by month or term/semester - I am expecting to have to use all or most of my savings this way - currently under £30,000 but I have two sons - they have also been given money by their aunt (my sister, whose husband has a very high salary) and there is a possibility of some inheritance before, during or after their higher education years. Whatever happens, I won't be giving them all the money available/required for 3 or 4 years at one go!

Does financially supporting your child through university have Inheritance Tax implications?
If a child is in full-time education, parents can pay for rent, tuition fees and maintenance without there being any Inheritance Tax implications.

There is no set limit for maintenance money; however it needs to be considered a reasonable sum to cover things like food, bills and spending money. If it is excessive, HMRC may deem that there is a ‘gift’ element, and this could have Inheritance Tax implications.

I hope this is the case, but do you have an 'official' source for it? That would be very useful.

If it is the case then we should all take care note down specificaly what expense each payment is for. This will help our executors.

It's specially relevant for me as my child is in full time education and I (divorced dad) am quite elderly.

Whatever you do don't give him four years expenses up front! He will spend it and not budget it over that time.

It can be classed as maintenance if they go to University straight from school with no gaps in education.

https://naailandco.com/inheritance-tax-and-gifts-for-maintenance-of-family/#:~:text=To%20one's%20children,-The%20maintenance%20of&text=The%20child%20needs%20to%20be,until%20the%20programme%20has%20ended.

If he took a gap from education after 18 before finishing his studies it would be included as a potentially exempt transfer for inheritance tax which means it wouldn't be counted if seven years passes after the gift is made before you died. It can't be a gift out of income because it comes from savings not income. If you were paying from your monthly income that would be different.

thank you for this, it is an absolutely key reference on this topic.

The fact that taking a gap year between school and university effectively kills the IHT exemption is important to bear in mind. I don't think this is widely known.

There is a significant difference between paying for accommodation and gifting £30k outright.

The latter is clearly a gift.

If you are married and your total estate is below £1m, then it is not a concern anyhow.

Point taken. In my case this is all very topical. My child is 19 and is in full time education and I am 70 and divorced.