Grandparents fund degrees to sidestep looming inheritance tax

Across the United Kingdom, grandparents are opting to pay for their grandchildren’s university tuition instead of leaving a sizeable estate, a move driven by an upcoming change to inheritance tax rules.

Why the shift matters now

Higher education fees have surged in recent years, leaving many students reliant on family support to cover tuition and living costs. At the same time, the Department of Education has confirmed that student‑loan interest rates will stay as high as six per cent for the 2026/27 academic year, keeping debt burdens heavy for new graduates.

Data from top wealth manager Rathbones shows that nearly two‑thirds of university students expect some contribution from grandparents. One in five seniors say they cover all or most of the costs, while 59 per cent combine their help with student borrowing.

Inheritance tax reforms as a catalyst

From April 2027, unused pension wealth will be pulled into the scope of inheritance tax for the first time, ending a long‑standing exemption. The Treasury Committee has warned that thousands of families could face a sudden tax bill, prompting many to reassess estate plans.

“For many grandparents, helping with education can achieve two objectives at once. Supporting children and grandchildren at a crucial stage of life while potentially forming part of a broader intergenerational wealth transfer strategy,” said Malvee Vaja, chartered financial planner at Rathbones.

Nearly 70 per cent of surveyed grandparents said the prospect of the new tax rule increased their desire to fund university fees while they are still alive, rather than leaving the money to be taxed after death.

Parental concerns and broader debt issues

Parents are also feeling the pressure. More than a quarter already contribute to university costs, with the average expected spend per child hovering around £50,000. Henrietta Grimston, chartered financial planner at Saltus, told City AM that families are increasingly wary of the debt a degree can generate.

“Over the last few years there has been this growing trend of families saying we’re all really concerned about the debt,” she said.

Some parents are choosing to repay student loans immediately after graduation to erase the balance, while others are refusing loans altogether and covering fees out of pocket.

As the 2027 inheritance tax change approaches, the trend of grandparents stepping in to fund education is likely to grow, reshaping intergenerational wealth flows and putting additional pressure on pension assets.