New research from wealth and asset management firm Rathbones has found that 67 per cent of parents and grandparents surveyed said forthcoming Inheritance Tax changes increased their desire to help fund education costs during their lifetime rather than leave the money as part of their estate.
The research involved 1,010 parents and grandparents who currently contribute, or expect to contribute, towards education costs for their children or grandchildren. It comes as unused pension wealth is set to be brought into Inheritance Tax calculations from April 2027.
Inheritance Tax considerations influence decisions
Almost seven in 10 (69%) said Inheritance Tax considerations influenced their decisions around education funding, including 25 per cent who described tax planning as a major factor. Meanwhile, 31 per cent said educational gifts should be viewed both as a way of supporting family members now and as part of a wider estate planning strategy.
The research also highlights the increasing financial role grandparents are playing in helping younger family members through higher education. Nearly two-thirds (65%) of those surveyed said grandparents contribute, or are expected to contribute, towards education costs.
Grandparents helping with university costs
Among grandparents providing financial support, one in five said they cover most or all university costs, including 7 per cent who said they fund virtually the entire cost of higher education. Almost six in 10 said family financial support is used alongside student borrowing.
This included 31 per cent who said the family makes a modest contribution alongside student loans and 28% who said university costs are divided roughly equally between borrowing and family funding.
Grandparents are also providing the money in a variety of ways. More than a third make cash gifts directly to grandchildren (37%), while 36 per cent give money to the parents. Some 34 per cent make payments directly to schools or universities and the same proportion have savings or investments specifically set aside for education costs.
Families concerned about rising education costs
More than eight in 10 (81%) of the parents and grandparents surveyed believe rising education costs mean people's life chances are becoming increasingly dependent on the financial resources available within their family. Previous Rathbones research found that 26% of parents who currently contribute, or expect to contribute, towards university costs anticipate providing more than £50,000 per child.
Malvee Vaja, Chartered Financial Planner at Rathbones, said: "Receiving good A-level results should open doors, but the reality is that going to university often comes with a significant financial commitment.
"The Bank of Mum and Dad has long helped young people navigate these costs, but we are increasingly seeing the Bank of Grandma and Grandad play an important role in funding educational opportunities.
"The Bank of Grandma and Grandad is no longer just helping younger generations onto the property ladder. Increasingly, it is helping fund education too. Many grandparents tell us they would rather provide support when the impact is immediate and visible than leave a larger inheritance later."
Inheritance Tax changes from April 2027
Under changes due to take effect from April 6, 2027, most unused pension funds and death benefits are set to be brought within a person's estate for Inheritance Tax purposes. The change could make estate planning increasingly important for people who had previously expected to pass unused pension wealth to beneficiaries outside their estate.
Rathbones said its findings suggest the forthcoming change is already influencing how some families think about passing wealth between generations. Ms Vaja 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.
"However, there is also a wider societal question. Families with accumulated wealth across generations are often better placed to absorb rising education costs than those without those resources.
"As education becomes more expensive, there is a risk that opportunities become increasingly linked to family wealth rather than ability and ambition alone."
