For many students, the gap between their maintenance loan and actual living costs means they’ll graduate with significant debt.
Helping out can make all the difference, but it pays to do it the right way. Knowing the rules means you can give generously without creating any unwelcome surprises, like unexpected Inheritance Tax (IHT) bills.
The real cost of university
Your child’s costs will depend heavily on where they live, as tuition fees and living costs vary.
- English students: Tuition fees are rising to £9,535 a year for full-time undergraduates. This is before living costs, which average £1,100–£1,500 per month.
- Scottish students: Students who come from Scotland don’t pay tuition for their first undergraduate degree (it’s covered by the Scottish Government). Students from the rest of the UK who study in Scotland, or Scottish students who study elsewhere in the UK, will pay around £9,535.
- Northern Ireland students: Students from Northern Ireland pay up to £4,855 a year if they study at home. Students from the rest of the UK, or Northern Ireland students studying elsewhere in the UK, will pay around £9,535.
It’s easy to focus on tuition fees when thinking about university expenses, but for most students, day-to-day living costs are just as significant, and often the bigger challenge.
Rent, food, bills, travel, and course materials all chip away at their budget, with prices varying depending on where they study.
To give you a clearer picture, here’s a snapshot of what the average student spends each month across the UK:
| Expense | Average per month |
| Rent | £540 |
| Food | £144 |
| Bills & utilities | £76 |
| Travel | £65 |
| Course materials | £18 |
| Social & other | £200+ |
Source: Save the Student
Maintenance loans are intended to cover living costs, but in practice they rarely stretch far enough, especially in larger cities like London, Manchester, or Edinburgh. That’s where family support can make all the difference.
What parents can do
- What support is (and isn’t) a gift
HMRC recognises that paying for your child’s tuition, rent, or reasonable living costs during full-time education is part of your natural duty of care. In practice, this means that covering rent directly with a landlord, paying tuition straight to the university, or transferring a reasonable monthly allowance for living expenses will not be treated as a gift and therefore has no IHT implications.
However, large lump sums for non-essential spending, or giving money without a clear connection to education or living costs, are treated as gifts under HMRC rules. The key is reasonableness: your financial support should reflect your child’s genuine needs and not go significantly beyond them.
- IHT: gifting rules explained
If your financial help falls outside what HMRC counts as normal parental support, there are rules that determine whether it could one day be subject to IHT.
- You can give away up to £3,000 per tax year using your annual exemption, which can be split between people and carried forward one year if unused. There’s also a small gifts exemption of up to £250 per person, per tax year, provided that person hasn’t also received part of your annual exemption.
- You can also make regular gifts from your surplus income without IHT implications. Just make sure you keep detailed records.
- For larger lump sums, the rules are different. These are called Potentially Exempt Transfers (PETs) and they become fully tax-free only if you survive for seven years after making the gift. If you and your spouse were to die within that period, and your combined estate (including property, investments and, from 2027, pensions) is worth more than £1 million, the recipient might have to pay up to 40% of the value of the gift to HMRC.
The good news is that IHT is only payable on estates above the available allowance, currently £1 million for a couple making full use of the residence nil-rate band.
If the total value of your estate is likely to be less than that, there’s no IHT to worry about. That said, with pensions being counted towards estate value from 2027, more families could find themselves edging closer to the threshold in future.
- Buying or gifting property
For some families, helping with accommodation goes beyond paying rent. It can mean buying a property for your child to live in during their studies. Done the right way, this can be a smart, tax-efficient move, but you need to know the rules before you take the plunge.
If you buy a new property solely for your child to live in, and you don’t use it yourself, it’s usually treated as a PET for IHT purposes. That means there would be no IHT to pay if you survive for seven years after the purchase. However, in this scenario you would also give up any right to live in the property, or any income in the event it was rented out, or the proceeds of sale.
Transferring an existing property you already own is trickier. It could trigger both Capital Gains Tax (CGT) and IHT, so this is one to get professional advice on before making any decisions.
Another option is to put the property into a trust. This can offer protection from future risks, such as divorce or debt, and can be set up to benefit more than one child. For example, if you have two children studying at the same university at different times, they could both make use of the property under the same trust arrangement.
What grandparents can do
Grandparents often want to play an active role in helping grandchildren through university, whether that’s contributing to the rent, covering some living costs, or giving them a financial head start.
The difference is, HMRC doesn’t give grandparents the same automatic exemption that parents enjoy for paying a child’s essential costs.
That means most financial help you give, whether it’s for tuition, rent, or day-to-day living, will usually be treated as a gift unless it falls under one of the standard IHT exemptions.
But there are still plenty of tax-efficient ways to contribute.
- You can use your £3,000 annual exemption (and carry forward one unused year), make small gifts of up to £250 per grandchild per tax year, or give regular amounts from your surplus income, provided it’s well documented and doesn’t come from capital.
- Larger one-off gifts can also work, but to be fully free of IHT, you’ll need to survive for seven years after making them.
- If you’re thinking about giving more substantial support, a trust can be a useful option. It allows you to set money or property aside for one or more grandchildren, while also offering some protection against future risks, such as relationship breakdowns or financial difficulties.
Key things to remember
In summary, here are our top golden rules to keep in mind when helping with university costs, so your generosity doesn’t accidentally create tax or financial problems for your family down the line.
- Where possible, pay providers directly, such as landlords, universities, or utility companies, to keep things straightforward and transparent.
- Keep contributions fair and proportionate to actual needs, so they count as reasonable support rather than taxable gifts.
- Use IHT exemptions strategically to make the most of your allowance.
- If you’re giving a larger lump sum, plan ahead with the seven-year rule in mind.
- Keep clear, detailed records of all payments, including the reason for them, this can be invaluable later.
- Consider setting up smaller, regular contributions instead of a single large payment, as it can be easier to manage for both you and your student.
- Talk openly about expectations and budgeting so everyone is clear on how the money will be used.
Get in touch
If you’re thinking about helping a child or grandchild through university, speak to an Amber River independent financial planner.
They can guide you through the most tax-efficient strategies, ensuring your generosity goes further, both for them and for you.
To speak to an Amber River financial planner, call 0800 915 0000, or alternatively, use our contact form to set up an initial appointment.
Disclaimer
The information within this article was correct at the time of publishing, but laws and tax rules are subject to change. Your circumstances and where you live in the UK may also have an impact on your tax treatment.
