Key facts
- Grandparents are funding grandchildren's university education to avoid inheritance tax.
- Upcoming inheritance tax changes from April 2027 will include unused pension wealth.
- Nearly 70% of families are reassessing estate planning due to these changes.
- Student loan interest rates for the 2026/27 academic year will be up to six percent.
- Over two-thirds of students receive or plan to receive financial support from grandparents for education.
Wealthy grandparents are increasingly choosing to fund their grandchildren's university education rather than leaving a large inheritance, in an effort to circumvent upcoming changes to inheritance tax laws. This trend is driven by both a desire to support younger family members facing escalating education costs and student debt, and a strategic move to mitigate potential tax liabilities.
Data from wealth manager Rathbones indicates that nearly two-thirds of students either receive or plan to receive financial contributions from their grandparents towards their education. One in five grandparents reportedly cover all or most of these costs, with a significant majority combining their support with student loans, reflecting a growing issue where loan amounts are insufficient for basic living expenses.
The decision to provide lifetime gifts is significantly influenced by inheritance tax considerations, with over two-thirds of grandparents admitting this factor. From April 2027, unused pension wealth will be subject to inheritance tax for the first time, prompting many families to re-evaluate their estate planning. Consequently, nearly 70% of those surveyed are motivated to fund university costs during their lifetime to avoid higher tax bills.
Malvee Vaja, a chartered financial planner at Rathbones, noted that this approach serves a dual purpose: supporting grandchildren during a critical life stage and facilitating intergenerational wealth transfer. This comes as the Department of Education confirmed updated student loan interest rates for the upcoming academic year, which could reach up to six percent, drawing criticism from graduates who feel misled about repayment terms.
Parents are also becoming more aware of the financial burden of degrees. More than a quarter of parents currently contribute or anticipate contributing an average of £50,000 per child towards university costs. Henrietta Grimston, a chartered financial planner at Saltus, observed that some parents are opting to repay student loans upon graduation or are choosing to fund their children's education entirely to prevent them from incurring debt.