Author: David Thurlow
Chartered Financial Planner and Investment Manager - Member of the Investment Committee
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Published: July 2025
This is probably the most memorable line from Pink Floyd’s 1979 Christmas Number One, “Another Brick in the Wall”.
It is also, of course, as untrue today as it was then, and a good education has never been so important to get on in life. According to the Institute of Fiscal Studies, 6-7% of UK students attend private schools and, of those, based on figures from the Independent Schools Council, a third are on reduced fees and about 6,000 pay no fees at all.
However, with the vast majority of students at private schools paying some fees, and most paying full fees, the impact of fees on the family finances is significant, especially with the introduction of VAT from January 2025.
Eton at £63,298.80 a year including the VAT increase (don’t forget the 80p) is clearly at the extreme, but according to the Telegraph, average day schooling costs £15,324 with boarding schools an average of £39,006 a year – before the VAT increase.
For anyone looking to give their children a private education, it has never been so important to plan for this, and to start planning as soon as possible.
Often today’s grandparents will have taken their own children through private education and will be as keen as their children for the next generation to have the same opportunities. Meanwhile, increases in the scope of Inheritance Tax (IHT) mean that grandparents are looking increasingly at passing assets to their adult children during their lifetime.
Skipping a generation and passing assets direct to grandchildren to help with school fees can be a tax effective way of helping with school fees, more so than passing funds direct to the parents.
There are two IHT gifting allowances that can help here:
Any individual can gift £3,000 to an individual (£6,000 from a couple) each tax year. By gifting this directly into savings or investment accounts in the name of child, parents can access for the benefit of the child, which could include school fees. Growth and income are taxed on the child, and as most children have little or no earnings, it may well be tax free. It is important that parents do not personally contribute into such an account, as other than a minimal amount, they are taxed personally on growth and income.
Gifting from surplus income can, under the right circumstances, enable significant gifts to be passed down through the generations without any liability to Inheritance Tax. To meet the qualifying criteria, gifts need to be regular (but don’t have to be the same amount or to the same person), must be from income and can’t affect the standard of living of the grandparents. It is vital that advice is taken to avoid the pitfalls, and a clear audit trail is kept to evidence this.
It might be preferable to make gifts earmarked for a grandchild’s education, especially larger gifts, into an absolute or bare Trust. Legally, the assets belong to the child, but they are under the control of the Trustees – usually grandparents and a parent – until the child reaches at least 18. Where they don’t qualify under an IHT exemption, such gifts are Potentially Exempt Transfers (PETs) which means that the donor must live for 7 years before they are completely free of IHT; another reason to do this sooner rather than later.
I have only touched on a few aspects of planning for school fees, especially by grandparents, and with the costs of private schooling growing and pressure on the State system mounting, advice is more important than ever.
As ever, if you would like to discuss your investments, please do not hesitate to contact us on 01223 233331 or email info@mmwealth.co.uk.
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Opinions constitute our judgment as of this date and are subject to change without warning. The value of investments and the income from them can go down as well as up, and you may not recover the amount of your original investment. Past performance is not a reliable indicator of future performance.
The information in this article is not intended as an offer or solicitation to buy or sell securities or any other investment, nor does it constitute a personal recommendation.
The information contained within this blog is based on our understanding of legislation, whether proposed or in force, and market practice at the time of writing. Levels, bases and reliefs from taxation may be subject to change.
