Bank of gran and grandad — 3 options for grandparents supporting with school fees

10 March 2025

3 min read

Brabners Personal, Private Client & Estate Planning

Grandparents teach their granddaughter gardening

October’s Autumn Budget introduced VAT on school fees from 1 January 2025, adding a whopping 20% to the cost of private education. For many parents, funding school fees is already a challenge — especially in light of other changes to taxation such as pensions becoming subject to inheritance tax (IHT) from April 2027.

We’re now seeing many grandparents wanting to address both challenges by taking on some of the responsibility for school fees. So, what are their best options? Here, private client lawyer Steven Appleton in our Brabners Personal team explores.

1. Payment of fees as they arise

The easiest way of making provision for school fees is to pay the fees directly. Each individual can give away £3,000 from capital that isn’t brought back into account for IHT purposes if the grandparents die within seven years. Anything above this is subject to the seven-year clock and might end up being subject to IHT at up to 40% if the grandparents die within that period.

2. Payment from income

If the grandparent is fortunate enough to have a good retirement income that allows them to fully meet their needs and have money left over, the money left over can be classified as ‘excess income’. If the grandparent uses this to pay school fees, the seven-year clock doesn’t apply and the money is gifted immediately and out of their estate for IHT purposes.

3. Lump sum payment

If the grandparents are fortunate enough to be able to cover school fees for a number of years from capital, they could either gift the money to the child to hold for the purpose or even set up a grandchildren’s education trust.

The main benefit of the latter is that they can be trustees and get to control what happens with the money as well as when it’s paid. This would start the seven-year clock running on day one, rather than having lots of clocks running — as the case would be if they just pay the invoice as it’s issued. Some schools will also accept a payment of fees up front and might even offer a discount if you do so.

Take legal advice

Whichever route is taken, it’s important to take advice on the options available and evidence any decisions with appropriate legal documents.

Not all of the above options will be suitable for everyone and it might be that other options present themselves depending on the circumstances of the family.