How grandparents can help fund private education

Following the introduction of VAT on independent school tuition, recent research suggests that privately educating a child between the ages of five and 18 will cost on average £350,000 (and that is without boarding). Faced with that expense, it’s hardly surprising that more than a third of parents have considered taking their children out of private education because of the cost.

Any offer of help from grandparents will therefore be very welcome and making financial provision now, rather than leaving something in your Will, may be an effective way for grandparents to contribute towards their grandchildren’s education whilst securing inheritance tax (IHT) savings.

Lifetime gifting by grandparents

A simple outright gift from a grandparent to pay school fees may become subject to IHT if the grandparent fails to survive seven years from the date of the gift. However, there are two exemptions worth bearing in mind.

First, lifetime gifts that do not attract another exemption from IHT may still be exempt if they do not total more than £3,000 in a given tax year. This gives two sets of grandparents the potential to gift £12,000 per annum free of IHT.

Second, lifetime gifts out of a grandparent’s surplus income may immediately be free of IHT if certain conditions are satisfied (for instance, the gifts form part of the grandparent’s normal expenditure and they are left with sufficient income to maintain their usual standard of living). Notably, there is no 7-year run-off period and there is no limit on the exemption.

What is the best way to make a gift?

A grandparent may choose to make such gifts to the child’s parents. Gifts could also be made into existing or newly established trusts for the benefit of the grandchildren and, so long as the above exemptions are utilised, future exposure to IHT on the part of the grandparents can be mitigated.

Do you own shares?

If you hold shares as a grandparent, you may also consider using them to help fund your grandchildren’s education. Suppose you own shares in a family business and don’t need the level of dividend income you receive: gifting those shares into a trust can be a tax‑efficient way to pay school fees without passing control of the family business directly to the grandchildren. If parents give shares to their children, any dividend income is taxed at the parents’ rate rather than the children’s. This doesn’t apply when the gift comes from grandparents.

Moreover, if your shares qualify for Business Property Relief (and, following changes effective from April 2026, are worth less than £2.5 million) there may be no immediate IHT charge on making the gift into trust, and any capital gains could be held over. The tax implications are complex, which makes taking expert advice essential, but gifting shares into trust could be a tax efficient way for a grandparent to contribute to their grandchildren’s education.

For more advice on funding private education, contact Anna Wensley Stock at Wansbroughs LLP (wealth@wansbroughs.com).

Guest blog by Anna Wensley Stock from Wansbroughs LLP.