They could use the 5% tax-deferred allowance of course - but looking at the example above this will run out by the end of year 8 and the withdrawals will come back to haunt them (tax-wise) when the bond is finally encashed.
Perhaps they could just bite the bullet and fund the fees net of tax on the chargeable gains? This could be worthwhile, especially if one of them is a non-taxpayer, but it would depend on their tax position and the other tax effective strategies that they could use.
Funding university costs
The strategy of using an international investment bond and washing out the chargeable gains using the student’s available allowances can also work perfectly well for funding the costs of university.
In addition, it can also be tax effective for the parents as use can be made of bond assignments to shift the tax point to the student.
The expected cost of school fees can be frightening, but with effective financial planning it can be mitigated. The use of trusts and the tax profile of international bonds can be very useful in this regard.
You can find out more about paying school fees in an upcoming webinar from Canada Life on its website.
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About Canada Life:
Canada Life is part of a group of companies controlled by Great-West Lifeco Inc., a diversified financial services holding company headquartered in Winnipeg, Canada. Through its subsidiary companies, Lifeco has operations in Canada, the United States, and Europe. Great-West Lifeco and its insurance subsidiaries have received strong ratings from major rating agencies.
Canada Life Limited, a wholly owned subsidiary of Great-West Lifeco, began operations in the United Kingdom in 1903 and looks after the retirement, investment and protection needs of individuals and companies alike. As well as providing stability and security through its individual contracts, Canada Life Limited has grown to become the leading provider of competitively priced group insurance solutions. www.canadalife.co.uk.
Canada Life Limited is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Canada Life International Limited and CLI Institutional Limited are Isle of Man registered companies authorised and regulated by the Isle of Man Financial Services Authority. Canada Life International Assurance Limited and Canada Life International Assurance (Ireland) DAC are authorised and regulated by the Central Bank of Ireland.