Does your estate planning include provision for your teenage or young adult grandchildren? If so, could they do with at least some of that inheritance money now, rather than when you die? Here’s why they might need your help more than ever this year, just to get started.
No room at the inn
For most students going to a city-based university, there is only a guarantee of accommodation for their first year if they had put the university down as their first choice. Even then, that accommodation might be overbooked. Last year, The Guardian revealed that there were simply not enough student hall places available, with the University of Manchester resorting to paying students who could live at home and travel in to do so.
With A level results returning to pre-COVID grade levels, a percentage of students this year didn’t get the grades they needed to go to their first choice. Hopefully, they would have found places for similar courses at other universities through clearing. However, these clearing places do not come with guaranteed accommodation - and finding any, let alone at an affordable price, can be a nightmare.
Indeed, according to a BBC report, one law student found it so hard that she:
“Ended up ditching the offer from Manchester Met and has switched to Sheffield Hallam where she's guaranteed to get a place in a flat with other first years.”
How much is student accommodation?
According to the latest Unipol and NUS figures:
- “The average cost for weekly rent in the UK in purpose-built student accommodation for 2021–2022 is £166.
- Private sector accommodation averaged £155 a week for an ensuite room and £228 for a studio.
- In London, the average was £212 per week for university accommodation and £259 for the private sector.”
This is where your estate plan might be able to help. By “bringing forward” a sum of inheritance already allocated for a grandchild, you could help your grandchild secure better (and safer) accommodation than they otherwise might be able to afford. You could also potentially cover their deposit, usually a month’s rent in advance, which can be a very large lump of cash for a young person to find.
Inheritance tax and gifts
There are inheritance tax implications for your estate on gifts to family and others, as the Gov website explains:
"Gifts given less than 7 years before you die may be taxed depending on:
- who you give the gift to and their relationship to you
- the value of the gift
- when the gift was given”
You have an inheritance tax free allowance per year of £3,000 which is known as the annual exemption. This might be sufficient to cover a rental deposit and ‘top up’ what your grandchild can afford in rent, for example.
You can give away more than £3000 per year, but the amount will liable to inheritance tax as part of your estate if you die within seven years of making that gift. For more details see our blog: Financial gifts and 7 year rule
Graduating grandchildren
Sadly, the same rent affordability trap awaits university graduates as they take on their first jobs. According to the latest Government figures forecast:
“The average debt among the cohort of borrowers who started their course in 2022/23 is £45,600 when they complete their course. (This) is expected to be lower for those starting in the reformed system from 2023/24 at £42,900. “
Repayments on an average student Maintenance loan of £18,000 (more if they studied in London) will be deducted from their wages by their employer when they start to work. What’s more, the interest charged on Plan 2 (post-2012) Maintenance loans is currently 7.1%, which makes it much harder to pay off it quickly.
Then there’s the cost of rent. According to UK 2022 figures from Zoopla:
- “The average cost to rent a one-bedroom flat is now £708 per month.
- Average bills on minimum usage for this property size is an additional £305 per month.
- Tenants in a House in Multiple Occupation (HMO) pay an average monthly room rent of £606, bills included.”
So, again, you might consider helping them out as they start their careers, so they are in safe, suitable accommodation. You may also be able to help with practical advice on budgeting, savings and more. For more ideas, see our recent blog: Estate planning for young adults
Caring for your future too
Even with the most careful estate planning in place, many of us do not have pots of cash that we can liberate at a moment’s notice. A gift you give now might have to be drawn down from investments and savings which you have earmarked to fund your own retirement and potential long-term care. So, ensure you really can afford to give that money as a gift, and not put yourself at financial risk as a result.
For more details, see our blog: Helping the next generation
Want to talk about how you might help out?
Make an appointment with us at Panthera Estate Planning, We can review your current estate planning, and assess the possible impact of you helping your undergraduate / graduate generation, should you wish to do so.