Welcome to the Wansbroughs Private Client - Wills, Tax, Trusts and Probate update for October 2010. The cost of a good education Private school fees have risen by an average of over 40% in the last few years, and university fees are set to increase, too. How can you fund your child's education? The message to parents is to start saving as early as possible. However, if grandparents are wiling and able to assist then there are some tax effective options available to them. Indeed, many see funding their grandchildren's education as a more immediate way of leaving a legacy, rather than waiting for the inheritance on death. Further, if a tax efficient option is chosen most grandparents would rather see their money go to their grandchildren now than to the Revenue on their deaths! Regular gifts out of income Grandparents can give away any excess income, provided that doing so does not affect their standard of living. Any such gifts out of excess income will not be subject to inheritance tax even if a grandparent dies within 7 years of making the gifts. Excess income from a pension, investments or even earnings could be used to help fund education fees for the grandchildren. If you do opt for this route then full details of income and expenditure should be kept, please speak with your usual contact at Wansbroughs for more information. Setting up a trust fund Grandparents can make a gift of capital into a trust fund designed to help with school and university fees, at the same time as helping with inheritance tax planning. Using a trust can transfer the income tax and capital gains tax responsibility onto the grandchildren, who can make use of their own personal allowances. This is a distinct advantage over trusts set up by parents, where the income earned will be taxed at the parent's rate and not at the child's rate. It may also be possible to transfer an asset with an inherent capital gain into a trust fund, thus avoiding an immediate charge to capital gains tax. We can advise you on the different trust options available, and what might be suitable in your circumstances. Making use of your £3,000 annual exemption Each grandparent can give away £3,000 in any one tax year with no inheritance tax consequences. You may therefore wish to consider using this exemption to help pay school or university fees; as a couple you could make a tax efficient gift of £6,000 to a grandchild in any one tax year. Given George Osborne's announcement in the Comprehensive Spending Review that the cap on university tuition fees is going to removed, this could be a useful contribution. If you would like further advice or assistance then please speak with your usual contact at Wansbroughs. | 
