Financing your family: School and beyond
One of life’s greatest pleasures is watching a child grow from someone that needs to be led by the hand into a young adult capable of navigating through the complexities of life on their own.
These first few independent years however, can often be a difficult mix of low paying jobs, high monthly rents, utility bills and other costs.
Unsurprisingly, many parents are interested in lending their children a financial hand to help ease the transition into adulthood. But dealing with child-related expenditure in a tax-smart way requires planning, forethought and having your own finances in order.
Here are a few of our top tips to consider when helping your children go from school to the world beyond.
University accommodation is one of the biggest contributors to the large debt burden that most students find themselves with after they graduate. Paying back this debt will then eat into their regular income for a significant period of time.
An obvious answer to this would be to reduce the level of debt that your child leaves higher education with. Less debt and targeting accommodation costs is a good strategy.
There are 2 main strategies that can be pursued in order to try and eliminate accommodation costs. The first is to have your child go to university close enough to where you live in order so that they can remain living with you. This option may end up costing the least but could mean your child misses out on some important formative experiences.
Secondly, you could buy a property for your child to live in while studying and let out rooms using a tax-free scheme. The government’s rent a room scheme allows for £4,250 (£7,500 from 6 April 2016) tax free from letting out a furnished room in your main residential property. However, the child would need to own the property to qualify for the relief and not every parent will be comfortable with this arrangement. Buying a property for your child can be complex, from sourcing an appropriate mortgage to deciding on split ownership. We advise that you seek professional advice well in advance and know what your options are.
Another important part of a young adult’s life is gaining the right kind of work experience. Finding positions that will take on people with no experience can be tricky, especially during summer holidays when a flood of young people come rushing home to fill seasonal vacancies.
So if you are a business owner, the obvious answer would be to hire your child during the holidays. If you employ a student at any other time you will have to operate PAYE as normal, but if you employ only during their educational holidays you may be able to apply special rules. If you are eligible to do this, you do not need to register as an employer with HMRC and you will be able to pay your child without having to deduct tax, although you will likely have to continue to pay national insurance. Our experts can advise on this.
Contact Partner Carrie Campbell today at email@example.com on how to make your money work for the benefit of both you and your children. Your first consultation with us is free and without obligation.