Funding Education with Purpose: How Grandparents Can Support School Fees and Reduce IHT

Education is one of the most powerful gifts someone can offer. And for many grandparents, considering supporting their grandchildren’s future goes beyond sentiment, it’s about legacy, values, and helping shape their future. As the financial landscape around private education shifts, so too does the role of grandparents. What was once a gesture of generosity is now becoming a key part of many families’ financial planning. This article explores how grandparents can support school fees in a way that not only benefits their loved ones but also forms part of a thoughtful Inheritance Tax (IHT) strategy.

Evolving shape of the private education landscape

Money spent on private education, or attending an “independent school”, is often viewed as one of the best ways to set up a child for the best chance of future success. 52% of Independent Schools Council (ISC) pupils who enter UK higher education attend one of the top 25 universities in the UK¹. But the benefits are not just about future academic opportunities. There are a variety of reasons parents may opt for private education, including supporting disabilities, helping with neurodiversity, and nurturing artistic talents.

However, private education also comes with a significant price tag. And 2025 has brought about new challenges as the government introduced 20% VAT on private school fees. As the cost of private education continues to rise, many families are turning to grandparents for support. For those with the means, helping with school fees can be a deeply rewarding way to invest in the next generation, and in addition, it could also play a part in a strategy for IHT planning.

Why grandparents are stepping in: The rising cost of education

With the introduction of the new VAT legislation, private school fees have increased considerably. The average annual fee for day schools (private schools with no boarders) saw its sharpest jump in years, increasing by 22% to £21844, or £7,281 per term². And this is having a real impact. Pupil numbers have declined by 2% year-on-year due to VAT increasing costs. This has seen parents choosing to withdraw their children, as well as a decline in the number of new pupils by 5%¹.

Looking at the big picture, for parents that want to send their children to private school for the duration of high school (until the end of 6th form), they could be looking at a bill of £152,908, without factoring in any increases to fees over the years.

With fees rising and pupil numbers declining, many families are reassessing how to afford private education. Even with careful planning and a long-term saving strategy, this is a considerable ask.

As such it’s no wonder that many more people require support to keep their children in private school. For some, grandparents are stepping in, not just out of generosity, but as part of a broader financial strategy. Supporting your grandchildren’s education can be more than just a financial decision, it can be a chance to pass on values, create opportunities, and strengthen family bonds. And when done thoughtfully, it can also be a useful tool for IHT liability management.

Paying school fees to lower your IHT bill?

UK families continue to pay more IHT than ever before. In the last 20 years, IHT receipts have increased by 148%, to £8.2 billion for the financial year ending March 2025³. IHT is charged at a rate of 40% on estates worth more than the nil rate band, which is £325,000. This increases by £175,000 to a total of £500,000 if you are leaving a family home to your children or grandchildren. Because transfers between spouses are tax-free, a married couple with a house could leave their children or grandchildren £1 million before they must worry about IHT.

One method of lowering your IHT bill is through gifting. Helping with school fees is a great practical way you could support your family while reducing your taxable estate. However, IHT rules mean you can’t simply gift as much as you would like without some careful considerations. To start, you could make use of certain allowances:

If these allowances aren’t enough to cover the amount that you’d like to use to support your grandchildren, there may be other ways of offering support and reducing your IHT. ‘Potentially Exempt Transfers’ could be an option, where your gift will be considered fully outside of your estate, however if you pass within seven years of making the gift, it may still be liable to IHT.

Trusts: a structured way to support education

As with many gifts, once the money has been handed over it is ultimately up to the recipient how it is utilised. If you had concerns and wanted to have more control over how your gift is utilised and ensure it goes towards education, you could consider a trust. Two common types are:

Trusts can be a powerful tool for gifting, but they are also complicated. Your financial planner will be able to help advise you and determine if this is the right strategy for you and your family.

Planning together as a family

If you choose to support your grandchildren’s education, it’s crucial you speak to your family about your plans. Education is a huge responsibility, and knowing views and priorities is an important step in making a plan. Having these conversations early can also allow you to take advantage of compounding opportunities if you wanted to establish a savings plan to support your grandchildren.

Whether you are already supporting your grandchildren or considering how best to help, your financial planner can help guide you through your options. They can help you ensure your generosity fits within your broader financial plan and guide you through the best approach for you. They can play a part in coordinating with your family and ensuring everyone is aligned. Together you can create a plan that can have reflects your values and enable your generosity to have a lasting impact.

This article is designed to provide you with information only. It is not designed to provide you with financial advice. Please seek financial advice if you are still unsure about your options. There may be a charge for this. Remember, tax treatment depends on your individual circumstances and may be subject to change in the future. And the value of investments can go down as well as up, and could be worth less than what was paid in. This information is based on our understanding in September 2025. Aberdeen is not responsible for the information, accuracy and views of external sources.