Can paying for my grandchild’s school fees help my financial planning?

We all want to help the people we care about. For many grandparents, one of the most meaningful ways to do that is to help with education costs.

That might mean helping with private school fees, university costs, music lessons, tutoring, school trips, or simply reducing the pressure on parents at a very expensive stage of family life.

There can also be a planning benefit. If structured properly, helping with school fees may reduce the value of your estate for inheritance tax purposes. It can allow you to pass money to your family during your lifetime, at a point when it is genuinely useful, rather than leaving everything until death. But this is an area where good intentions are not enough. The numbers need to work. The gifts need to be affordable. And the structure needs to be right.

This matters even more now because private school fees have become more expensive. From 1 January 2025, private education and boarding services became subject to VAT at the standard rate of 20%. Schools may not pass all of that cost on in every case, but for many families, the cost of private education has risen materially. So, the real question isn’t just about that; it’s about understanding the bigger picture. That’s exactly where proper planning becomes so valuable and essential.

Private education is expensive

Private school fees were already substantial before VAT was added. According to the Independent Schools Council’s 2025 Census, the typical day school fee among its schools was more than £6,000 per term before VAT. Once VAT and extras are considered, many families are now looking at annual costs of well over £20,000 per child, and significantly more for boarding.

The headline school fee is also rarely the full cost. Families may also need to allow for:

• uniforms;

• lunches;

• transport;

• school trips;

• sports equipment;

• music lessons;

• exam fees;

• laptops and technology;

• extra-curricular activities.

For parents with more than one child, the total cost can become very significant. It is no surprise that grandparents are often asked whether they can help.

The “Bank of Gran and Grandad”

The Bank of Mum and Dad is often talked about, particularly when children are buying their first home. But grandparents can also play a major role in family financial planning. For some families, grandparent support can be the difference between private education being affordable or not. For others, it can help parents avoid draining savings, reducing pension contributions, or taking on expensive debt.

From a grandparent’s perspective, this can also be emotionally powerful. You get to see the benefit of your help during your lifetime. That is important. Financial planning is not just about reducing taxes. It is about using money well. If you have more than enough for your own needs, there can be real value in giving earlier, while your family can actually use the money.

How inheritance tax works

Inheritance tax is usually charged at 40% on the value of your estate above your available allowances. The standard nil rate band is currently £325,000 per person. There may also be a residence nil rate band of up to £175,000 if you leave a qualifying home to direct descendants, such as children or grandchildren.

For a married couple or civil partners, unused allowances can often be transferred to the surviving spouse or civil partner. In the right circumstances, this can allow a couple to pass on up to £1 million before inheritance tax is due. However, that £1 million figure is not automatic. It can be affected by:

• who you leave your estate to;

• whether you own a qualifying residence;

• how your Will is structured;

• the value of your estate;

• lifetime gifts;

• whether the residence nil rate band is tapered away because your estate is worth more than £2 million.

This is why inheritance tax planning should not be done in isolation. A simple gift can have wider consequences.

Gifting can reduce inheritance tax

If you give money away during your lifetime, and you survive for seven years, the gift will usually fall outside your estate for inheritance tax purposes. This is often called the seven-year rule.

For example, if you gave £50,000 to help with school fees and survived for seven years, that £50,000 would normally no longer form part of your estate for inheritance tax. If you die within seven years, the gift may be brought back into the inheritance tax calculation. The position depends on the size of the gift, your other gifts, your available nil rate band, and the timing. This does not mean lifetime gifting is a bad idea. It means it needs to be planned properly.

Start with affordability, not tax

The worst school fees plan is one that looks tax-efficient but leaves the grandparents financially exposed. Before making regular gifts, you should understand:

• How much income you need now;

• how your spending may change later in life;

• whether you may need care;

• whether your home may need adapting;

• how much investment risk you are taking;

• how inflation could affect your future costs;

• whether your spouse or partner would still be secure if you died first;

• whether the gifts would still be affordable in a poor investment market.

This is where cashflow modelling can be useful. It allows you to test whether helping with school fees is affordable not just this year, but over the rest of your lifetime. It can also show whether a regular gift is likely to remain affordable if investment returns are lower, inflation is higher, or your spending changes. The objective is to help your family without putting your own independence at risk.

Use your annual exemption

You can give away up to £3,000 each tax year without it being added to the value of your estate for inheritance tax purposes. This is known as your annual exemption. If you did not use your annual exemption in the previous tax year, you can usually carry it forward for one tax year. For a couple, this can mean £6,000 per year between you, or potentially more in the first year if both of you have unused exemptions from the previous year. This may not cover school fees in full, but it can still help.

For example, two grandparents using their annual exemptions could contribute meaningfully towards school fees each year. If started early, this can reduce pressure on parents and gradually move money out of the grandparents’ estates.

Gifts out of surplus income can be very powerful

The annual exemption is useful, but it may not be enough. There is another important exemption that is often more valuable: gifts made as part of your normal expenditure out of income. Broadly, regular gifts can be immediately outside your estate for inheritance tax purposes if they meet three conditions:

1. they form part of your normal expenditure;

2. they are made out of income, not capital;

3. they leave you with enough income to maintain your usual standard of living.

There is no fixed monetary cap on this exemption. This can make it particularly useful for grandparents with surplus income from pensions, earnings, rental income, dividends, or interest. School fees can fit naturally with this exemption because they are regular and predictable. For example, a grandparent might agree to pay a set amount each term directly to the school, provided this is affordable from surplus income.

However, the exemption is not automatic. It has to be evidenced. You should keep clear records showing:

• the income you received;

• your normal spending;

• the gifts you made;

• who received the benefit;

• when payments were made;

• that the gifts did not reduce your standard of living;

• your intention to make the gifts regularly.

This is important because the exemption is usually claimed after death by your executors. If there are poor records, HMRC may challenge the claim. A simple annual gift record can make life much easier for your family later.

Paying the school directly can help with clarity

Some grandparents simply transfer money to their adult children and trust that it will be used for school fees. That may work in practice, but it can be messier from a planning and record-keeping perspective. In many cases, paying the school directly can be cleaner. It can help show:

• the amount paid;

• the timing of the payment;

• the purpose of the gift;

• the regular nature of the arrangement.

It also reduces the risk that money is mixed with the parents’ wider finances. That said, the right approach depends on the family, the school, and the wider estate planning position.

Should you use a trust?

A trust can be useful where grandparents want to set money aside for education but still want some control over how and when the money is used. There are different types of trust, and the choice matters.

Bare trusts

A bare trust is relatively simple. The assets are held by trustees for a specific beneficiary. For tax purposes, the assets are usually treated as belonging to the child. This can be useful because children often have their own personal allowance and capital gains tax allowance.

A bare trust can be useful where money is intended for one specific grandchild. However, there is a major drawback: when the child reaches 18 in England and Wales, they are normally entitled to the trust assets outright. That may be fine if the trust is expected to be spent on school fees before then. It may be less suitable if a large amount could still be left when the child becomes an adult.

Discretionary trusts

A discretionary trust gives trustees more flexibility. The trustees can decide which beneficiaries benefit, when, and by how much. This can be useful where grandparents want to help several grandchildren or future grandchildren, or where they do not want a child to become automatically entitled to a lump sum at 18.

The trade-off is complexity. Discretionary trusts can have their own inheritance tax, income tax and capital gains tax rules. Transfers into discretionary trusts can be chargeable lifetime transfers, and there may be ten-year and exit charges. A discretionary trust can still be valuable, but it should not be set up casually. It needs legal and tax advice.

Do not forget Junior ISAs and pensions

A Junior ISA can be a good way to build long-term savings for a child, but it is usually not suitable for school fees because the money cannot normally be accessed until the child turns 18. That means a Junior ISA may be useful for university costs, a first car, or a house deposit, but not for private school fees while the child is younger. A pension for a child is an even longer-term. It can be very tax-efficient, but it will not help with education costs.

The wrapper must match the objective. If the goal is school fees, access usually matters more than theoretical tax efficiency.

Be careful with fairness between family members

School fee planning is not just technical. It can also be emotional. If you help one grandchild, should you help the others? What if one child has three children and another has none? What if one family chooses a private school and another does not? What if a grandchild receives help with school fees and later receives the same inheritance as everyone else?

There is no single correct answer. But these questions should be discussed early. A good plan should be clear enough that your family understands whether the school fee support is:

• an advance on inheritance;

• an additional gift;

• equalised later through your Will;

• based purely on need;

• available to all grandchildren on the same terms.

This is where written records, family conversations and properly drafted Wills can prevent future resentment.

The practical checklist

If you are thinking about helping with a grandchild’s school fees, consider the following steps:

1. Find out the full expected cost, including VAT and extras.

2. Decide whether you want to pay all fees or a fixed contribution.

3. Check whether the support is affordable using cashflow modelling.

4. Decide whether payments should be made to the parents, the school, or a trust.

5. Use annual exemptions where available.

6. Consider whether gifts out of surplus income could apply.

7. Keep detailed records of all gifts and the income used to fund them.

8. Review your Will to make sure the wider estate plan still works.

9. Consider whether the plan is fair across the wider family.

10. Take legal and tax advice where trusts are involved.

The main point

Helping with school fees can be one of the most satisfying forms of lifetime gifting. It can support your family when help is genuinely needed. It can reduce pressure on parents. It can give your grandchildren opportunities. And, if structured properly, it may also reduce the inheritance tax payable on your estate. But it needs to be affordable, properly documented, and coordinated with your wider plan.

The aim is not simply to reduce tax. The aim is to use your money well: supporting your family, protecting your own future, and making sure your wealth does what you want it to do. If you would like to understand whether helping with school fees is affordable for you, we can help you model the numbers and think through the options.

If you need advice, we’re here to help. Schedule a free, no-obligation chat here. A guide on selecting a financial advisor is also available here.

 

 

This article is for general information only and does not constitute personal financial, tax or legal advice. Tax rules can change and their impact depends on individual circumstances. The Financial Conduct Authority does not regulate tax planning, trust advice or school fees planning.