Need to "lose" £25K

[Tim-D]

Have a small dilemma looming - my dear offspring hits 18 in a couple of months and intent is to go to uni in September...

At birth his amazing grandparents started putting a few quid away each month for him via a tax efficient method for them which has grown very nicely indeed and has a substantial value....

Problem being that a) sprog is certainly not mature enough to receive that kind of lump sum without buying up everything on amazon or decamping to the pub for months.... and b) the impact of having that kind of assets in the figurative "bank" when becoming a student would I fear leading to it being significantly diminished or god forbid wiped out....

Both of my parents are not exactly in the greatest of health so they don't want to retain this sum in case something should happen to them whilst in possession.....

Obviously I'll be taking some financial advice on behalf of here, but.... in the interim - has anyone got any bright ideas (other than hookers & coke :-) ) that I should be considering in the interim......?????

Cheers all....

[condor]

That sum could be used to pay his Uni tuition fees, which is probably the best way to spend it.

[anonymous-user]

Discretionary trust with the money to vest absolutely when he hits 25/30/pick an age.

[Tim-D]

Thanks chaps - although I know paying his fees would be the obvious position I'm coming from the angle of the old folks intent here - which was to give him a start towards getting a place of his own, and also my own experience that it's much easier to have an intact sum when the time comes rather than having to save for years...

Not wishing to be a total killjoy on him - he can have a grand or two to fritter away /enjoy a bit but I don't want him knowing, as a student, exactly how much is left as he'll come to rely on it being there with potentially skint results in a few years......

I've seperate plans of my own in train to pay off a chunk of his student debt - not all as, and it sounds awful, I want him to enjoy the experience but not too much and learn the life lessons needed.....

[Type R Tom]

Use it for a deposit on a house in the town he is going to study in. 3 or 4 rooms will make enough to cover the mortgage although for BTL you may need more than £25k deposit.

He may choose to stay in the town post uni so he's then set up and can take over from you.

[AnimalMother]

Type R Tom said:

Use it for a deposit on a house in the town he is going to study in. 3 or 4 rooms will make enough to cover the mortgage although for BTL you may need more than £25k deposit.

He may choose to stay in the town post uni so he's then set up and can take over from you.

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[Ginge R]

Tim,

How do they want to deliver the money, what is their tax status and is IHT an issue?

Ask your adviser for their thoughts on the pros and cons of an Investment Bond - it's a wrapper in the same way that a pension or an ISA is, but placed in a bare or absolute trust. The grandparents can set aside the money into a cheap bond (normal fund selection applies) and your son can take 5% each year at his (presumably, with no liability) marginal rate.

Your son's grandparents are making a potentially exempt transfer if they go down the bare trust route or a chargeable lifetime transfer if they opt for the discretionary trust route. If IHT is an issue, these both take seven years to fall outside of their estate, so care must be taken to ensure they follow the correct order of gifting.

There's no perfect 'one size fits all' solution.

[Jon39]

Same circumstances for my children.
They were not in desperate need of their money at 18 years of age, which made things easier. As you say, there might be concerns about whether they would use the money wisely.

As long as the assets (shares, bank accounts etc.) have designated account titles, with the 'childs' initials to show ownership, then just carry on. The children could demand their money at any time, but might be happy to know they have growing assets for their future.

[Jon39]

AnimalMother said:

Type R Tom said:

Use it for a deposit on a house in the town he is going to study in. 3 or 4 rooms will make enough to cover the mortgage although for BTL you may need more than £25k deposit.

He may choose to stay in the town post uni so he's then set up and can take over from you.

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Son met a friend at Uni.

In year two, the friend became a landlord exactly as you both suggest.
The place was refurbished, fire doors throughout, new boiler, ground floor extension, new kitchen, etc. Big costs.

After it was finished with, the sale was difficult (2009), and by that time the friend was working 200 miles away.

Son had the best deal. His room in that house was only about £120 per month, with no tenant hassle, or surprise maintenance costs.

I think that property was sold at a loss eventually.

[Revisitph]

Re buying a property - he may not want nor have the ability to be a landlord at 18-21 (unless you want to sort things out on his behalf) and as said above, it isn't always a good financial deal.

Having said that, I considered using parental guarantee to get a mortgage on a 6 bed Victorian house in Tufnell Park when a student in the early 1980s... As students we didn't expect too much in those days and slightly grotty ones were, I recall, ~ £45k then (without all the multioccupancy regs we have now of course) and the maths would have worked but I didn't feel able both to be a young landlord and do my tough degree. I have not looked to see what it would be worth now...

[Zingari]

condor said:

That sum could be used to pay his Uni tuition fees, which is probably the best way to spend it.

Disagree and not advised by experts. How is he going to fund uni accommodation and living expenses? Halls are c£6k pa

You could allow him to draw down on it (amount set by you) so much a month to assist with uni life rather than busting his balls in a part time job and/or taking the maintenance loan to pay his way though degree. Dependent on family income the maintenance loan (even the max) will struggle to maintain a student through uni!

My daughter has a similar trust arrangement where she gets a monthly allowance from it in addition to a part time job

[Revisitph]

Zingari said:

Disagree [paying tuition fees] and not advised by experts. How is he going to fund uni accommodation and living expenses? Halls are c£6k pa

Paying off / avoiding tuition / subsistence fees isn't advocated by experts on the premise that a large proportion of students will never earn enough to be asked to pay off the loans. Agreed, a degree in film studies with modules in nailcare and hair extension technology from the University of East Scrudcombe on Sea is unlikely to lead to employment sufficiently well paid to force the student to pay back the fees, but assuming that the OP's son will be doing a degree which leads to a job above the living wage then rendering him free of student loan repayments when he is working may be a good idea. After all it is a hypothecated payment - if you pay the fees directly he can't spend it on anything else and it can then potentially pay back big dividends - and, better, those don't accrue until he is old enough to see their value.

ETA - Z, not an attack on you - we've discussed this off-forum before and are on the same page. My eldest, now earning in her first year of work, is v chuffed not to be paying, effectively, 11% extra tax because she hasn't uni costs to pay back (with interest).

Edited by Revisitph on Saturday 7th January 23:34

[Zingari]

Revisitph said:

ETA - Z, not an attack on you - we've discussed this off-forum before and are on the same page. My eldest, now earning in her first year of work, is v chuffed not to be paying, effectively, 11% extra tax because she hasn't uni costs to pay back (with interest).

No problem chum, we're all different and its worked out for you, gone as planned, so everyone is happy. I may choose to repay the loan at the end of my daughters degree, or make a contribution as I will see an outcome of it. I do still help her out financially having tried to convince her not to take the maintenance loan (only entitled to minimum) but she took it anyway - her choice.

However I'm still mindful of the fact my daughter as an adult made a life choice to attend university and any financial penalties are hers and not for me to drop her a £60k 'windfall' of money that I've earned over my working life that has thankfully so far made me comfortable enough to retire early.

I did think of buying a property near to uni (cheap enough to buy outright) so she could rent out a room to mitigate the running costs but she'd rather live with her boyfriend so her priorities are a lot different to mine.

End of the day we're all different. I took advice and acted on it, which may not be the right course for everybody. OP should do what he feels is right.

[DonkeyApple]

Logically, that amount of money is going to be most beneficial once he has graduated, settled into a career and location and is needing to get into the property ladder. Trying to get it into a trust to swerve PETs (if relevant) until about 25 might be the best route.

However, in reality, there is no perfect way to plan a gift such as this and whatever you do could backfire or certainly not go as planned. I had plenty of school acquaintances who just wracked up debts until they got their grubby hands on well intended trust funds. Obviously, you can try and just keep it secret.

Maybe sitting down with someone who is 18 and drawing up a plan together as to what to do with the money is an idea? When I went to uni it was free and I had no worries. I imagine that the average intelligent kid today heading off to much more expensive living costs and huge fees will have worries that could impact how they perform or the descisions they make. It could be something that actually benefits him hugely in that regard and give him clearer focus rather than just running around 'making it rain'.

When I went to school (boarding) my father gave me a budget per term and told me that whatever amount I managed to return home with at the end of each term he would double. It's something that made me very frugal and also keen to earn money where possible as every pound earned was worth two. I managed to comprehensively stitch my father up while it also taught me the real value of money and how to not waste it and how to earn it which was obviously his intent. It has been incredibly beneficial to me in life.

[Jon39]

DonkeyApple said:

... my father gave me a budget per term and told me that whatever amount I managed to return home with at the end of each term he would double. It's something that made me very frugal and also keen to earn money where possible as every pound earned was worth two. I managed to comprehensively stitch my father up while it also taught me the real value of money and how to not waste it and how to earn it which was obviously his intent. It has been incredibly beneficial to me in life.

That is very good. I did not think of that incentive. Obviously carrots are so much more effective than sticks.

One piece of advice for my children about money, was whatever you earn, immediately put aside 10%. They are certainly fairly careful with their money now.

[romeogolf]

I would not advise paying of his tuition fees. I was in a similar position when I was his age.

I would think it better invested perhaps as a deposit on a flat which can be rented out until he graduates. He can then decide whether to live there himself or sell it and pay of the student loan if he wants to. And in the 3 years he's studying it will have gone up in value more than the £25k would have done.

I have student loans which I will be paying off for some time, but the additional £90-£100 of "tax" each month has always been coming out, so I've never missed it. The inheritance I received when I was younger was used as a deposit on a flat which we rented out. I now own a second flat and this year will be buying a third home. £100/month suddenly doesn't seem a huge figure when I've got ~£800 of rent (after mortgages) coming in each month as well.

[JB!]

Property.

Depends on where you are but 25k will go a decent way in the east mids, towards a BTL.

[S10GTA]

condor said:

That sum could be used to pay his Uni tuition fees, which is probably the best way to spend it.

Don't do this.

[oyster]

Aren't the student loan repayment fees tax deductible? Or at least the interest component?

[anonymous-user]

The problem is that at 18 my children had power over the money left to them by their grandmother. With the best will in the world they intended to save it - but its all gone now, within 6 years. So I know where OP is comimg from!