This autumn, almost half a million students will head off to university to start an exciting new life in a brand new city.

This autumn, almost half a million students will head off to university to start an exciting new life in a brand new city.

But once the safety net of the first year is over, and they no longer live in halls, they will be faced with looking for an affordable place to live.

Buy-to-let investors have long been investing in prime university town locations, but now amateur inves-tors are getting in on the act too.

Parents are realising that paying rent for three to four years is dead money and are, therefore, deciding to buy university accommodation for their child instead.

While this is a good idea for reducing university living costs and providing a saving scheme for retirement, it does carry some hefty tax implications, of which buy-to-let investors, especially new investors to the market, should be aware.

Mark Alexander, managing director of buy-to-let brokers The Money Centre, said: “Parents who invest in property for their offspring to live in while at university are making a wise move, but they should be aware of all the tax penalties it can entail.

“However, this shouldn't deter them, as there are preventative measures that can be taken to ensure the taxman doesn't dip into your profits too much."

If you buy a property for your son or daughter to live in, and rent out the other bedrooms, you will have to pay tax on the rental income, as well as having to pay capital gains tax (CGT) when you sell.

However, buy-to-let specialists say you should not sell even when your child graduates.

“The key to a successful long-term buy-to-let portfolio is to release equity and reinvest,” said Mark. “You should simply view the purchase of your child's student accommodation as your first step on the buy-to-let investment ladder. By re-investing equity, and not selling, you will never be liable for CGT."

So what are the options for reducing tax payable on the rental income?

One option is for parents to buy the property in their child's name. As a student, they are likely to be a non-taxpayer.

This can prove tricky because they do not apparently have an income for mortgage purposes but an increasing amount of buy-to-let lenders are now prepared to give mortgages based on the earning potential of the property rather than the individual. Parents can also act as guarantors taking their salary into account.

And while income from rent generated from the property will be liable for income tax, it will only be payable on the basic-rate band. This band should be much lower than that of salary earning parents so will save a considerable amount of tax.

Obtaining an interest-only mortgage can also save tax because the interest you pay on your mortgage can be set against the tax bill.

With a repayment mortgage, the amount of interest you pay every year falls, and tax relief decreases with it.

Tax relief can also be obtained on repair and maintenance bills, so it is important to retain receipts from repairers and tradesmen.

New furniture, white goods and furnishings can be deducted from your tax bill too and you have the option to either claim for all these individually, or take 10 per cent of your annual rental income as an allowance.

"The popularity for students' parents to invest in property has taken off so much that some lenders are trialling 'Buy-for-Uni' mortgages near Bath and Bristol,” said Mark. “This is based on the predicted rental income of the property and means mortgages can be obtained for up to 100 per cent of the property value, removing the need for a deposit.

“I predict that as more parents realise the benefits of buying these type of mortgages will become available nationwide."