Updated 30 August 2023
It’s not long now before the next cohort of young people will be leaving home to attend university. A tuition fee loan will usually be available to cover 100% of tuition fees. But the size of any maintenance loan will depend on household income: very often it won’t cover a student’s full living costs.
Some students will be expecting to live in a traditional hall of residence or university college; some will be renting privately. Another option for a few might be purchasing property. Where resources are available (typically, parental or grandparental resources) this may be attractive.
If the prospective student buying the property is a ‘first-time buyer’ paying less than £625,000, Stamp Duty Land Tax (‘SDLT’) will be payable only on any excess over £425,000, at 5%. Otherwise, duty will usually be 0% on the first £250,000; 5% on the next £675,000; 10% on the next £575,000; 12% on the excess. And students don’t pay Council Tax.
Rent received from sharing the property with fellow students will be tax-free up to £7,500. Anything in excess of that will in principle be taxable (though may be covered by the student’s personal tax allowance of £12,570 if there is no other income).
Thus, a parent who is in the fortunate position of being able to lend the student the full purchase price may achieve the result that the student is not only free of the burden of paying rent, but also has a source of funds to supplement or even replace whatever loans are available. Even if some or all of the price has to be borrowed, the numbers may work out favourably, especially if the course is longer than the usual three years.
This isn’t without risk, of course – financial and other.
In a rising market one might expect, on selling the property at the end of the spell in higher education, a gain sufficient to cover transaction costs and to come out ahead. But the present property market is uncertain.
And SDLT first-time buyer relief is, by definition, available to a buyer only once: if it’s used by the student on the student property it won’t be available on a subsequent longer-term purchase.
More generally, while some students may dislike life in hall, many others love it: for them, being a live-in landlord may compromise the ‘student experience’. And some may simply be too irresponsible for it to be contemplated.
None of this is investment advice, of course: and the education landscape is different in Scotland. But for more information, please get in touch with your usual BKL contact or use our enquiry form.
Find out how Making Tax Digital could affect landlords – student or otherwise – from 2026 onwards in our article on MTD for Income Tax Self Assessment.