Many parents support their children financially through university. Parents who run their own companies may consider making grown up children shareholders in order to take advantage of the £5,000 dividend allowance and their children’s lower rate tax bands.
Sophie is 18 and at university. She will have to pay tuition fees of £9,000 per year, her rent at halls of residence is £7,000 per year and she is budgeting for food and other bills of £100 per week. It is assumed that Sophie will take the loan from the Student Finance Company to cover the tuition fees of £9,000.
If her parents decide to fully support her rent and other bills, their daughter could cost them £12,200 per year.
Sophie’s parents own their own company
- They re-arrange their share capital perhaps opting for different classes of shares
- They gift Sophie shares in the company, up to the value of their CGT annual exemption
- The board of director’s declares annual dividends to Sophie
There is a £5,000 dividend allowance where Sophie pays tax at 0% and Sophie has a personal allowance of £11,000. As such dividends up to £16,000 can be paid to Sophie without any personal tax liability.
This strategy means that parents do not have to fund university costs out of net of tax income.
If you wish to discuss this planning strategy in more detail please contact Brian King on [email protected] or telephone 024 7622 1046.