Are Grandparents Funding Private Education at Their Own Expense?

Experts are cautioning that grandparents who are digging into their savings to cover the increasing costs of private school fees may jeopardize their financial security in later years.

The recent implementation of VAT on school fees has prompted many grandparents to step in and help with the additional financial burden. Matthew Grimes from The Penny Group, a financial consultancy, stated, “We’ve been approached by numerous families expressing their frustration over the VAT. We’re witnessing an increase in conversations around gifting and strategies for safeguarding money for educational expenses.”

With the removal of the VAT exemption for private schools, parents may face a cost increase of up to 20%, depending on whether schools pass on the entire charge. This tax change is projected to generate an additional £460 million for the Treasury this fiscal year, potentially rising to a staggering £1.7 billion annually by 2029-30. The government indicated that this influx of funds would be used to hire 6,500 more teachers for state schools.

This move has intensified the financial strain on families who are already struggling to afford private education. According to the Independent Schools Council (ISC), which advocates for over 1,400 schools, private school fees have historically increased by an average of 5% annually over the last 30 years.

In 2024, average term fees for day schools were reported at £6,021 (£18,063 annually), a significant rise from £4,398 per term (£13,194 per year) in 2015. For boarding schools, average fees climbed to £14,153 per term (£42,459 annually), compared to £10,123 per term (£30,369 annually) in 2015, according to ISC data.

A survey conducted by Premium Credit revealed that 35% of parents who chose private schooling received financial assistance from family members last year, with 69% of this support coming from grandparents.

Additionally, a survey from wealth management firm Saltus, which included 2,000 parents with at least £250,000 in investable assets, indicated that one in nine parents with children in private schools were considering transitioning them to state-funded schools.

Kirsty Stone of The Private Office noted a rise in grandparents utilizing their pension savings to assist family members, particularly following the October budget announcement, which indicated that pensions would be subject to inheritance tax starting April 2027.

“Grandparents who planned to keep their pensions untouched due to their inheritance tax exemption are now opting to utilize their pensions while they can,” Stone explained. “Families prefer to make gifts sooner, and for many, contributing to school fees is an ideal way to do so.”

Angela Gourd: A Grandparent’s Generous Contribution

One such generous grandparent, affectionately referred to as Supergran by her family, is Angela Gourd. She provided financial assistance to cover her grandson Ryan’s private school fees this year, alleviating the need for her daughter, Victoria Borman, to take on an additional job.

Ryan began attending Bedford School as a day student in September and is preparing for his A-levels while also engaging in academy-level rugby with the Northampton Saints, thanks to the school’s strong affiliations with the team.

The school charges approximately £16,684 for the 2024-25 academic year, excluding the 20% VAT that will be added for the upcoming term. Following a scholarship and a bursary, Ryan’s total fees were reduced to around £7,800 for the year, yet this was still a considerable expense for his mother.

Borman, 46, who operates her own business, CBD Angel, selling cannabidiol products and managing a holiday rental property, considered taking on extra work until her mother offered her support.

“During a typical Sunday dinner together, she volunteered to help,” Borman recounted. “Mum mentioned, ‘I’ve set aside money for Ryan in my will, and I’d rather put it to good use now rather than let it sit there.’”

In addition to Ryan’s school fees, Gourd plans to fund his second year and has also covered a £3,800 rugby team trip to South Africa, along with £600 for his school uniform and training gear.

“Ryan now has a genuine shot at a career in rugby, and seeing him happy makes me happy. Mum loves witnessing Ryan thrive at school, so it’s truly a win-win situation. She is undeniably a supergran,” Borman shared.

Caution for Generous Grandparents

The trend of grandparents stepping in financially is becoming increasingly significant.

According to insurer SunLife, one in four individuals over the age of 50 has given substantial cash gifts to family members in the past five years, with an average gift amounting to £20,021. Furthermore, one in six grandparents consistently provides financial support to their adult children and grandchildren, as per a survey by the investment platform Moneyfarm.

These supportive grandparents, on average, contribute £71,942 throughout their lifetimes toward expenses such as rent, housing deposits, energy bills, and educational fees.

Making lifetime financial gifts can not only be rewarding for families but can also provide significant tax advantages. Under the seven-year rule, individuals can give away unlimited amounts without incurring inheritance tax, provided they survive seven years after the gift is made.

Additionally, smaller gifts can be made within annual gifting allowances, which remain exempt from inheritance tax. There is a £3,000 a year gift allowance and the ability to gift multiple amounts of £250 to different individuals in the same year without tax implications.

Parents can give £5,000 to their child for a wedding without incurring tax, with grandparents able to give up to £2,500. Notably, this can be combined with the annual £3,000 exemption, allowing a parent to make a total wedding contribution of £8,000.

However, generous grandparents must exercise caution to avoid compromising their financial wellbeing in the future. “Grandparents should prioritize their financial security over providing for their grandchildren, regardless of how much they adore them,” advised Gianpaolo Mantini from Saltus.