Students starting at college or university in the autumn will face higher than ever financial demands because of the introduction of top-up fees.
Many students will be looking to parents and grandparents for financial help with the costs of maintaining them through their studies.
Simple tax planning can reduce pressure on the family wallet and ensure that graduates leave university without crippling debts, says John Barrett - a partner at Berwins and an expert on tax planning and money management.
"The most obvious approach may be for a parent or grandparent to give the student a monthly allowance by bank standing order," said Mr Barrett.
Where the parent makes the allowance, such payments will generally be exempt from inheritance tax as a 'disposition for the maintenance of the family' in respect of payments for the maintenance, education or training of the child for a period ending not later than the year in which he attains the age of 18 or, after attaining that age, ceases to undergo full-time education or training.
Mr Barrett said: "The payment by the parent or grandparent may be exempt from inheritance tax if it is part of the payer's normal expenditure, is paid out of his income and, after allowing for all his normal expenditure, leaves the payer with sufficient income to maintain his usual standard of living."
If neither exemption applies, the £3,000 annual exemption for inheritance tax may be available. This is available to both parents, so between them, two parents could gift £6,000 each year within their annual exemptions.
There may be family trusts that could help with a regular allowance or with a lump sum. If the student's other income does not cover his personal allowance and lower rate bands, as will usually be the case, they will generally be able to recover some of the tax suffered on the trust income if the trustees decide to make a discretionary payment of income to him.
There are also some benefits in investing in a house says Mr Barrett. "In some cases, parents or grandparents will be able to finance the purchase of a house for the new student to live in at their university town.
"If the house grows in value, when the student comes to sell it, they will be able to claim the main residence exemption. If they have another residence elsewhere, they would need to make an election for the university house to be his main residence."
The student could earn some money by letting some of the rooms out to fellow students. The income from such lettings would be liable to income tax, subject to the 'rent a room' relief. Rental income of less than £4,250 per annum from letting out part of the student's main residence is exempt from income tax under this relief.
