A quarter of wealthy grandparents are financially assisting with their grandchildren's education, with a significant portion citing inheritance tax reduction as a key motivator. A survey conducted by wealth planner Rathbones, which polled over 1,000 affluent parents and grandparents already supporting or planning to support educational expenses, found that 25 percent of grandparents considered tax planning a "major factor" in their decision.
More than two-thirds of respondents indicated that inheritance tax considerations influenced their decision to some degree. Among those already providing financial aid, one in five reported covering most or all university costs, including 7 percent who fund nearly the entire expense. Almost 60 percent of families combine this support with student borrowing, such as government loans.
This trend emerges as many students are beginning or continuing their university education. Previous Rathbones data suggests that 26 percent of contributing parents expect to spend approximately $50,000 per child on education. Gifting assets during one's lifetime is a common strategy to lower the taxable value of an estate upon death.
Inheritance Tax and Future Changes
While most estates currently do not incur inheritance tax, the number of estates subject to the tax is expected to rise. Starting in April 2027, unspent pension pots will become liable for inheritance tax, potentially pushing more individuals above the tax-free threshold of £325,000. According to the Rathbones survey, 67 percent of respondents stated that these upcoming changes have increased their inclination to fund educational costs during their lifetime rather than leave the money as part of their estate.
For the 2026-27 academic year, tuition fees for most university courses in the UK are set at £9,790 annually, with loans available to cover these costs. Students living away from home can receive an annual maintenance loan of up to £10,830, with a higher amount of £14,135 available for those living in London. However, these maintenance loans are means-tested based on parental income, and some students receive a minimum of £4,915.
Understanding Inheritance Tax
Inheritance tax is levied at a rate of 40 percent on the portion of an estate exceeding the tax-free threshold. An individual's estate encompasses their home, savings, investments, valuable personal possessions, and, from 2027, unspent pension funds. Each individual is entitled to a £3,000 annual gifting allowance, which is exempt from inheritance tax. Larger gifts can also be inheritance tax-free if the giver survives for seven years after making the gift. If the donor dies within this seven-year period, the tax liability is calculated on a sliding scale, ranging from the full 40 percent if death occurs within the first three years to 8 percent if it occurs between the sixth and seventh year.