Paying for university is the first big financial decision many parents make on their child’s behalf. Rent, a loan top-up, a house near campus, a holiday job that gets taxed. Each one has a tax rule attached, and most parents never hear about them until it is too late to plan.
Roughly seven in ten parents contribute to a child’s university costs. Research from Opinium puts the average at around £8,700 a year. The Higher Education Policy Institute suggests a student needs closer to £14,000 a year to reach a minimum standard of living. Whatever the figure in your household, paying for university means money is leaving your account in a form HMRC has a view on.
This guide sets out the rules that matter. It is general information, not advice. Figures were checked against GOV.UK on 14 September 2026.
Should I pay off my child’s student loan when paying for university?
The short answer: usually not.
Paying off a Plan 5 student loan early is usually the wrong use of the money. The loan behaves like a graduate tax rather than a debt. Graduates repay 9% of income above £25,000 a year. Interest is currently 4.1%. Whatever is left is written off 40 years after the April they were first due to repay.
Two things follow from that. Repayments depend on earnings, not on the size of the balance, so a large balance does not mean large repayments. And a graduate earning below the threshold repays nothing at all. For many, the loan is never fully cleared. A lump sum paid in now reduces a balance that would have been written off anyway.
There are exceptions. A graduate heading for a high, stable salary may clear the loan within the 40 years. For them, early repayment can make sense. That is a calculation about the individual’s likely earnings, not a rule. Working it through properly is exactly the kind of conversation worth having before the money moves.
Is paying off a student loan a gift for inheritance tax?
The short answer: yes, and the seven-year clock starts the day you pay.
A lump sum paid towards your child’s student loan is a gift for inheritance tax purposes. It is treated the same as handing them the cash. It is a potentially exempt transfer. If you live seven years after making it, it falls outside your estate. If you die within seven years, it may be taxed on a sliding scale. The rate is 32% for a gift made three to four years before death. It falls to 24% at four to five years, 16% at five to six, and 8% at six to seven. After seven years there is nothing to pay.
Taper relief only applies once the total gifts in the seven years before death exceed the £325,000 nil-rate band. Below that, there is no tax to pay in any case. But the gift still counts towards the total, and it still needs recording. Keep a note of what you gave, to whom, its value and the date.
Can I pay my child’s university rent without an inheritance tax problem?
The short answer: yes, if it comes from regular income and you record it.
Paying your child’s university rent can fall entirely outside inheritance tax under a rule most parents have never heard of. HMRC calls it “normal expenditure out of income”, and its own guidance gives “paying rent for your child” as an example. There is no upper limit. The payments must come from your regular income, not savings. You must still afford your usual living costs after making them.
Three things make the exemption stick. The payments need to be regular, so a monthly transfer works better than an ad hoc lump sum. They need to come from income, so pay them from the account your salary lands in. And they need documenting. Your executors claim the exemption after your death, and they will need to show the pattern. A simple spreadsheet of dates and amounts is enough.
Alongside this, everyone has a £3,000 annual exemption for gifts of any kind. It can be carried forward one year if unused, so a parent who gave nothing last year can give £6,000 this year. Small gifts of up to £250 per person per year are exempt too, though not to someone who has already used another allowance.
Should I buy a house for my child to live in at university?
The short answer: only after pricing the 5% surcharge and the capital gains tax on exit.
Buying a student property in your own name triggers a 5% stamp duty surcharge on top of the standard rates. It counts as an additional residential property. On a £250,000 house, that surcharge alone is £12,500 before the standard stamp duty is added. When the property is later sold, any gain attracts capital gains tax. CGT is one of the taxes most widely expected to rise at the Budget on 28 October.
Buying in the child’s name avoids the surcharge but means giving the capital away outright. The child owns the property, can sell it, and the value sits in their estate rather than yours. A trust can sit between the two positions, but that is a legal structure with its own tax treatment and a solicitor needs to be involved. The right answer depends on three things. How long the child will be there, what happens to the property afterwards, and how the purchase fits your wider estate.
Will my child pay tax on a part-time job at university?
The short answer: not on the first £12,570, but they are often over-taxed anyway.
A student pays no income tax on the first £12,570 they earn in a tax year, the same personal allowance as everyone else. The problem is that students who work only in the holidays are often put on an emergency tax code. The employer assumes a full year’s earnings and deducts tax that is never actually due.
Overpaid tax can be reclaimed, and our tax team handles these claims regularly. HMRC issues a P800 tax calculation after the end of the tax year. Your child claims the refund through their Personal Tax Account on GOV.UK. Claims can go back four tax years. If your child has worked summer jobs since 2022, there may be several years of refunds sitting unclaimed.
What happens to their Junior ISA at 18?
The short answer: it becomes theirs, outright.
A Junior ISA becomes the child’s own account on their 18th birthday, with full control over the money. Parents cannot hold it back or direct how it is spent. The annual limit is £9,000, and it converts automatically into an adult ISA.
The adult ISA allowance is £20,000 a year. From 6 April 2027, the cash ISA portion is capped at £12,000 for anyone under 65. The balance can only go into stocks and shares. If your child is about to inherit a large cash Junior ISA, that change is worth knowing about before they decide what to do with it.
What should you check before paying for university?
The short answer: where the money comes from, and whether you are writing it down.
Four things are worth settling before the first transfer. Decide whether you are paying from income or from savings, because the inheritance tax treatment is different. Start the record of what you give, when, and from which account. Check whether your child has been over-taxed on any previous holiday work. And if a property purchase is on the table, work through the surcharge and the ownership question before anything is agreed.
Cubed Consultancy is a firm of chartered accountants in Harpenden, Hertfordshire, and we are also FCA-authorised for financial planning. That combination means the tax position and the wider family plan get looked at together rather than by two separate advisers. If you are about to start paying for a child’s university, book a free consultation and we will go through where you stand.
Is money I give my child for university taxable for them?
No. Gifts are not income, so your child pays no income tax on money you give them. The tax question sits with you, and it is inheritance tax, not income tax.
Can grandparents use the same inheritance tax rules?
Yes. The £3,000 annual exemption, the normal expenditure out of income rule and the seven-year rule all apply to grandparents in the same way. Regular grandparent contributions to a grandchild’s rent are a common and tax-efficient arrangement.
Does paying university costs affect my child’s maintenance loan?
Not directly. The maintenance loan is means-tested on household income when the application is made, not on gifts received during the year. Higher household income reduces the loan and increases the amount parents are expected to cover.
Do I need to tell HMRC when I give my child money?
Not during your lifetime. Gifts are reported by your executors after your death, which is why keeping your own records matters. There is no form to file when the gift is made.
General information, not advice. Tax depends on individual circumstances and the rules change. Figures verified against GOV.UK on 14 September 2026. Speak to a qualified adviser before acting.
