Grandparents fund university degrees to avoid inheritance tax net
Wealthy grandparents are choosing to fund their grandchildren’s university education over leaving a large inheritance as they look to avoid the shake up to the tax system.
The bank of grandma and grandad has played a greater role within UK families in recent years, as parents continue to be squeezed by rising costs.
In particular, soaring higher education costs and the subsequent debt have made teenagers increasingly dependent on financial pools available from family members.
Nearly two-thirds of students say their grandparents contribute towards their education or are planning to, according to the latest data from top wealth manager Rathbones.
One in five grandparents confirmed they cover all or most of university costs, while 59 per cent said family support is combined with student borrowing.
This reflects a growing problem among students who are finding their loan does not stretch far enough to cover basic needs.
Dodging estate planning
But grandparents’ generosity isn’t solely tied to ensuring their grandchildren succeed. More than two-thirds admitted inheritance tax considerations influenced their decision to help.
From April 2027, unused pension wealth will be brought into the scope of inheritance tax for the first time, causing thousands of families to lose their exemption.
The change has prompted many families to reassess their estate planning to avoid a hefty tax bill. Nearly 70 per cent said the looming changes increased their desire to fund university costs during their lifetime instead of leaving it as part of their estate.
Malvee Vaja, chartered financial planner at Rathbones, said: “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.”
Concerns on debt
Grandparents emptying their pockets also comes as the Department of Education confirms updated student loan interest rates for the upcoming 2026/27 academic year. Some borrowers will continue to face interest charges of up to six per cent.
The decision to leave these interest rates high has seen backlash from graduates who argue they are being crippled by swelling debt after being misled over repayments.
The Treasury Committee also accused the government of knowingly mis-selling student loans for years, failing to inform them of certain conditions.
Parents are also becoming aware of the debt burden attached to a degree, leaving many considering different routes of financial help.
More than a quarter of parents currently contribute or expect to contribute towards university costs. Parents expect to spend an average of £50,000 per child.
Speaking to Morning Wire, Henrietta Grimston, chartered financial planner at Saltus, said: “Over the last few years there has been this growing trend of families saying we’re all really concerned about the debt.”
Grimston noted some parents are opting to repay student loans upon graduation to erase the debt. Others are not allowing their children to take out a loan at all, instead choosing to fund their education themselves.