As we head closer to the start of the new academic year, many soon-to-be university students are getting ready to move away from home for the first time and embark on the next step in their educational careers.

University fees make this next step an expensive endeavour for students and their families alike – but what if there was a more tax-efficient method for covering the costs of your child’s university fees?

Luckily for many business owners, gifting your child shares in your company can help you pay for your child’s university fees completely tax free. 

How do these tax savings work?

University students are often supported by their families during their time at university, with most students not having tax-paying jobs.

As a result, potential tax savings are going to waste, as you’re not taking advantage of your child’s tax-free allowances totalling £14,570. Most university courses last for 3 years, meaning that you would be able to extract a total of £43,710 (£14,570 x 3 years) during your child’s course. However, the cost for you to withdraw this amount normally would be almost £66,000 – saving you over £22,000 in tax!

With interest charges on tuition fee loans (currently 7.3% until 2024/25, then CPI plus 3%) and in times of rocketing inflation, student loans are not a good option if the family are able to support their children. Also, interest rates now run from the date the loan is taken out, rather than the completion of the course.

Therefore, gifting 10% of dividends to your child can help you pay for their university fees without any tax implications or being impacted by interest rates. 

How do you make giving shares to your children from the family business safe?

Using a trust or another similar vehicle can ensure that your funds and shares cannot be abused and that they are kept safe.

A trust also gives you more control over your child’s finances whilst allowing them to benefit from being a beneficiary.