A recent survey by wealth planner Rathbones indicates that many affluent grandparents are funding education to reduce inheritance tax liabilities. This strategic shift comes as upcoming UK tax changes threaten to increase the number of estates subject to taxation.
The April 2027 pension pot tax trigger
The motivation behind this trend is largely driven by impending legislative shifts in the UK tax code. According to the Rathbones report, unsspent pension pots are set to become liable for inheritance tax starting in April 2027. This change is expected to pull a significantly larger number of individuals above the current £325,000 tax-free threshold.
As a result, 67 percent of those surveyed expressed a heightened desire to fund education costs during their lifetime rather than leaving assets as part of their estate. By gifting money now, these families aim to reduce the total value of their taxable estate before the new rules take effect.
The £50,000 per child education investment
The financial commitment involved in this strategy is substantial. Rathbones found that 26 percent of parents who contribute to or plan to contribute to education expect to spend approximately £50,000 per child. This is part of a broader pattern where family support is often used to supplement student borrowing, with nearly three in five families combining private funds with student loans.
For some, the support is even more comprehensive. The survey notes that one in five grandparents providing support covers most or all of university costs, with 7 percent of that group funding virtually the entire expense of higher education.
The gap between £9,790 tuition and £4,915 loans
While family wealth can bridge the gap, many students must rely on government assistance that may not cover the full cost of living. For the 2026-27 academic year, tuition fees are expected to reach £9,790 for most students. While most can secure loans for these fees, the maintenance loans for living expenses vary significantly based on location and income.
Students living away from home can receive an annuual maintenance loan of up to £10,830, which increases to £14,135 for those in London.. However, because these loans are means-tested, some students receive as little as £4,915, leaving a significant deficit that wealthy families are increasingly eager to fill through strategic gifting.
The missing data on families below the £325 ,000 threshold
While the Rathbones study provides a clear window into the behavior of the affluent, it leaves several critical questions unanswered. The survey focused exclusively on wealthy parents and grandparents who are already providing or planning to provide support, meaning the broader impact on the general population remains unknown. It is unclear if middle-income families, who may also be pushed above the £325,000 threshold by the 2027 pension rules, have similar mechanisms to protect their assets or if they will be disproportionately affected by the rising costs of higher education.
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