No grandparent wants to see their grandchildren up to their eyeballs in student debt. Collectively, British grandparents saved £2.4bn for their grandchildren last year - putting away an average of £154 each, according to JP Morgan Asset Management. But this looks like peanuts when you consider students these days are expected to emerge from university clutching a degree scroll in one hand, and a £50,000 debt in the other.
Separate research from the AIC shows 14 per cent of student's grandparents are helping with university expenses - giving £1,967 per year on average. What will work best for you depends on how much money you can spare, and how you want to give it. If you want to help your grandchildren, here are four different ways you can do so.
Last week we discovered how the Bank of Mum & Dad can chip in to help.
If you want to give them a lump sum aged 18
If you're planning ahead for a younger child, you can save up to £3,720 a year in a tax-free Junior Isa in their name until they are 18, when they can access the money. If you want to save more than £3,720 a year - or parents are also contributing - you can set up a bare trust where there is no limit on how much you can put in. With bare trusts, the beneficiary has an immediate and absolute right to both the capital and income held in the trust. Many providers of managed funds and investment trusts provide a form that you can fill out to enable your investment to be held as a bare trust. Once the trust has been set up, the beneficiaries can't be changed, so you need to be sure you want to give the money away. And, remember, anything you give away that's over the £3,000 annual gift limit will be subject to inheritance tax if you die within seven years of giving it.
Secure their retirement so they can pay back their debt more easily
Another option if you don't like the thought of your grandchild splashing the cash you give them on rounds of shots at the student union, is to start paying into a pension for them instead. This way they'll have a head start with pension saving, so they can concentrate on paying student debt back when they've graduated and saving up for a deposit on a first property. You can put a maximum of £2,880 into a self-invested personal pension (Sipp) for a child each year, to which the government will add £720 in tax relief, boosting the value to £3,600, but the child won't be able to access the money until they are at least 55 years old.
Help them out as and when they need it
You can save into your own individual savings account (Isa) - if you haven't already used your annual allowance - and retain complete control of the money. But if you've got more to give and you aren't sure exactly when or how much you want to give away, a discretionary trust could be a good solution. As long as you haven't given away any other gifts you can transfer up to £350,000 into a discretionary trust with no upfront inheritance tax (IHT). You can nominate trustees to look after the money - and they can take responsibility for looking after the assets in the trust for the beneficiaries, so it's important to choose people you know and trust. Grandparents using trusts to give money to grandchildren normally have their parents as trustees.
The trustees can decide how to use the trust's income, and can also have discretion about how to distribute the trust's capital - although they aren't allowed to take it for themselves. Trustees may also be able to decide which beneficiary to make payments to, how often the payments are made, and what, if any, conditions to impose on the recipients. This can make them useful for future costs that aren't known yet - for example, if one of your grandchildren needs more financial assistance than others at some point in their life. And if you feel your grandchildren aren't yet responsible enough to make their own decisions about the money yet, this arrangement means you can avoid them having control over it.
Give them income from your pension
You can also make regular 'gifts out of income' which are free from inheritance tax. But they have to be made out of excess income (so giving the gift doesn't affect your standard of living) in order to be exempt. This could be extremely useful if you have a drawdown pension as you could choose to draw a higher income in the years you wanted to help your grandchildren through university.
COST OF UNIVERSITY
Students who started their degree last autumn will graduate with an average debt of £53,330, according to data from insurance company LV=. The loan comprises two parts: up to £9,000 a year for fees, and a maximum maintenance loan of up to £5,500 if they're living away from home outside London, or £7,675 if they're living away from home in London.
