A quarter of wealthy grandparents are helping to pay for their grandchildren's education, citing inheritance tax reduction as a significant factor, according to a survey by wealth planner Rathbones. The survey questioned over 1,000 wealthy parents and grandparents who are already contributing to or plan to contribute to a grandchild's schooling or university costs.
More than two-thirds of these grandparents acknowledged that inheritance tax considerations influenced their decision to some extent. For one in five grandparents who already provide financial support, the assistance covers most or all university expenses, with 7% funding nearly the entire cost of higher education. Almost three in five report that this family support is supplemented by student borrowing, such as loans.
This trend emerges as many students are receiving A-level results and facing the prospect of higher education costs. Previous data from Rathbones indicated that 26% of parents contributing or planning to contribute anticipate spending approximately £50,000 per child. Gifting money during one's lifetime is a common strategy to decrease the taxable value of an estate upon death.
Inheritance Tax Landscape
While most estates currently do not incur inheritance tax, an increasing number are expected to fall within its scope. Starting in April 2027, unspent pension pots will become subject to inheritance tax, potentially pushing more individuals above the tax-free threshold of £325,000. In the Rathbones survey, 67% of respondents stated that these upcoming changes heightened their inclination to fund educational expenses during their lifetime rather than bequeathing money as part of their estate.
Annual tuition fees for the 2026-27 academic year are set at £9,790 for most students, with loans generally available. Maintenance loans for living expenses can range up to £10,830 annually for students living away from home, or £14,135 in London. However, these loans are means-tested based on parental income, and some students receive a minimum of £4,915.
Inheritance tax is levied at a 40% rate on the portion of an estate exceeding the tax-free threshold. An estate comprises assets such as homes, savings, investments, valuable personal items, and, from 2027, unspent pension pots. Individuals have a £3,000 annual gifting allowance that is tax-free. Larger gifts can also be exempt from inheritance tax if the giver survives for seven years after making the donation. If the giver dies within this seven-year period, the tax is applied on a sliding scale, starting at 40% for gifts made within the first three years and decreasing to 8% for gifts made between the sixth and seventh year.