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Lucy Brennan considers how parents and grandparents can pay for tuition fees tax efficiently

How to pay school fees can be at the forefront of parents’ minds, especially now when combined with the costs of tuition fees at university. However, there are some simple things that can be done, both by parents and grandparents if they were so minded, to start saving tax efficiently for those fees.

19 March 2012

Savings plan

Parents can use an ISA to save for education, with the income (and capital gains if a shares ISA) rolling up tax free. Over the period from birth to a child starting school a substantial amount can build up, with the current ISA allowance at £5,340 for a cash ISA and £10,680 a for cash and shares ISA. Using both parents’ ISA allowance will add to the tax efficiency of the savings.

However, parents should be aware that the simple solution of putting an income generating asset (such as a cash) in their child’s name, while saving for a child’s future, will not necessarily save income tax on the income generated. Where parents transfer income generating assets to their children, income over £100 is taxed to the parents and the child’s personal allowance remains unused.

For university fees, pa...

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