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Investing In Student Accommodation For Your Children

There are ways to minimise the tax due ...



As students are returning to college and university, it's becoming apparent that the rents for student accommodation are spiralling out of control. So what can a parent do about it? Well, maybe they could buy a property instead ...

Investing in student accommodation for your child has various tax implications!

Investing in student accommodation for your child has various tax implications!

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Students could be charged upward of £200 a week for a room near one of the top universities in the UK. What if a parent bought a property for their offspring instead? Renting the other bedrooms out to carefully chosen friends means that there's a good rental income which could cover the running costs of the property, and even contribute to the course fees for their child.

"There are tax implications though!"

Stamp Duty Land Tax (SDLT) is payable on the purchase of any property in England, Wales and Northern Ireland. The SDLT rate depends on whether it is the main residence or a second or subsequent property.

This will depend on whether the parent buys the property or whether it is the child's property. Is could be funded by contributions from mum or dad or perhaps even grandparents with one of them acting as a guarantor on the loan.

Assuming the parents decide to buy the property (and already have their own main residence), SDLT will be payable at the higher rate set at 3% above the normal residential rate. If the son or daughter purchases the property and it is their first home, the normal residential rates will apply.

"If the child buys, then for a £300,000 property, there would be an SDLT saving of £9,000!"

Additionally, if the student lives in the property as his or her main home and lets out rooms, they can take advantage of Rent-A-Room Relief where rental incomes of up to £7,500 a year can be tax-free. The student does not have to own the property, the parents could own it and let to the student, who then lets rooms to friends and uses the rent received to fund their living costs at university.

Tax reliefs are also available for expenses incurred in getting the property ready to rent out, as long as they are of a type that would be deductible if incurred while the property was let.

The list of deductible expenses includes:

  • Accountant fees

  • Utility bills

  • Buildings and contents insurance

  • Cleaning costs

  • Gardening costs

  • Ground rent and service charges

  • Council tax (if met by the landlord)

Calculations for the relief of interest and other costs is changing, moving from a deduction based system to one where relief is given as a basic rate tax reduction.

"What about selling it once they graduate?"

Once the child has finished university, you may want to sell the property, either to provide a home in another location for work or maybe to buy student property for a younger sibling.

If the parents own the property, gains will be taxable, although these may be covered by the annual exempt amount. If the child owns the property and lived in it as his or her main residence, the gain will (to the extent that the property is the main residence) be exempt.

"Would you like to know more?"

If the property is purchased and utilised in the right way, it is possible to minimise SDLT and any tax on rental incomes and when you come to sell it. You can call me on 01908 774323 or click here to ping me an email if you'd like to find out more about investing in student accommodation.

Until next time ...


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More about Helen Beaumont ...

Helen brings the personal tax planning experience of the top 20 tax companies to Essendon. Formerly of MacIntyre Hudson (with 45 offices nationwide), Helen worked at Chancery for more than 10 years before joining Essendon as the personal tax specialist.

Tax Planning can make a considerable difference to your tax liability. Helen has specialist knowledge and experience in tax planning and uses every opportunity to minimise your tax bill is utilised. By analysing your investments, income, profit and expenditures, Helen will provide strategic tax planning expertise that could offer significant savings, whilst delivering clear, honest advice and guidance.

When Helen is not at Essendon she spends time with her young son and likes going on long walks with the family dog.