School Fees and University Fees Planning in the UK 2026/27: How Parents and Grandparents Can Pay

October 8, 2026 — David Gregory, Chartered Financial Planner

Private school fees now carry 20% VAT and university can cost far more than tuition alone. Here is how to work out the real cost, which savings wrappers to use, how grandparents can help tax efficiently and how to pay for education without derailing your retirement.

How much do private school and university really cost?

The headline fee is only the starting point. For school you also need to budget for registration fees and deposits, uniform, transport, meals, trips, music and sport, technology and exam fees. Boarding adds considerably more.

VAT has changed the sums. Since 1 January 2025, education and boarding services provided by private schools for a charge have generally been subject to VAT at the standard rate of 20%. How much of that reaches your bill depends on each school's own pricing, so start with the school's current fee schedule and check exactly what is included.

University costs go well beyond tuition. Families should also plan for accommodation, food, travel, books and equipment, and social spending. Those costs rise with inflation, and London is significantly more expensive.

The key step is to build a year by year cost projection rather than multiplying today's fee by the number of years left. Fees rise and investment returns are not guaranteed, so a projection that allows for both is far more reliable.

Is paying school fees in advance tax efficient?

Not automatically. VAT legislation includes specific rules on payments made in advance, and each school's terms differ. Before making a substantial prepayment, ask the school in writing for the amount payable, how VAT applies and what happens if your child leaves early or circumstances change. A fees prepayment scheme can still make sense for some families, but the refund and cancellation terms matter as much as any discount.

Should I save or invest for school fees?

That depends on when the money is needed. A useful approach is to split the overall target into time horizons:

• Fees due within the next few years: generally best held in cash or similar low risk savings, where certainty matters more than growth.
• Medium term costs: a cautious mix, with investment risk reduced as each payment date approaches.
• University funding ten years or more away: investments may offer better long term growth potential, but their value can fall as well as rise.

Automating a regular monthly contribution turns a daunting future cost into a predictable household commitment. Bonuses, inheritances or other one off sums can then speed things up. The right level of risk depends on your attitude to risk, capacity for loss and how much flexibility you have if markets fall just before a payment is due.

Junior ISA or ISA: which is better for school fees?

For 2026/27, each adult can pay up to £20,000 into ISAs and each child can receive up to £9,000 into a Junior ISA. Anyone can pay into a child's Junior ISA within that limit. Both grow free of Income Tax and Capital Gains Tax.

The deciding factor is control. Money in a Junior ISA belongs to the child. They can take control of the account at 16 and withdraw the money at 18, and withdrawals are generally unavailable before then except in limited circumstances. Once they have access, they are free to spend it on anything. That makes a Junior ISA well suited to long term savings you are happy to hand over, such as a university or first home fund, but less suited to school fees you need to pay yourself.

For fees, many parents use their own ISA, or a mix of ISA, savings and general investments, so the money stays under their control. Be aware of the parental gift rule: if money a parent gives to their unmarried child under 18 produces more than £100 of interest or income in a tax year, the whole of that income is taxed as the parent's income. The limit applies per parent, and the rule does not apply to gifts from grandparents or other relatives, or to Junior ISAs and Child Trust Funds.

Will I pay Capital Gains Tax if I sell investments to pay fees?

Possibly. Selling investments held outside an ISA or pension can create a Capital Gains Tax bill. For 2026/27 the annual exempt amount is just £3,000, and gains above it are taxed at 18% to the extent they fit within your unused basic rate band and 24% above it. Spreading sales across tax years, using both spouses' allowances and moving money into ISAs over time can all help.

Should I stop pension contributions to pay school fees?

Usually not. One of the most important principles of education planning is not to sacrifice your own retirement unnecessarily. Student finance can help with university costs, but there is no equivalent loan to fund your retirement.

Pension contributions can benefit from tax relief at your highest rate. For 2026/27 the standard Annual Allowance is £60,000. For higher earners it is tapered where threshold income exceeds £200,000 and adjusted income exceeds £260,000, reducing by £1 for every £2 above that level to a minimum of £10,000. Your own tax relievable contributions are capped at 100% of your relevant UK earnings, or £3,600 gross if higher. Employer contributions count towards the Annual Allowance, and if you have flexibly accessed a pension the £10,000 Money Purchase Annual Allowance may apply. For earners with income between £100,000 and £125,140, a pension contribution can also restore some of the lost Personal Allowance, although the money is then committed to your pension rather than available for fees. A balanced plan usually funds education from several sources while keeping pension saving on track.

How can grandparents help with school fees tax efficiently?

Grandparents often want to help, and with the right structure their support can also form part of their wider estate planning. They can pay the school directly, contribute to a Junior ISA or savings, or make regular gifts. For 2026/27 the key Inheritance Tax exemptions are:

• The £3,000 annual exemption, with one year's unused allowance able to be carried forward.
• The normal expenditure out of income exemption. Regular gifts from surplus income, such as paying a grandchild's termly fees, can be immediately exempt with no set upper limit, provided they form part of the grandparent's normal expenditure, are made out of income rather than capital and leave them with enough income to maintain their usual standard of living.
• Larger gifts to individuals generally fall outside the estate if the grandparent survives seven years.

Records are crucial, because executors may later need to prove a gift qualified. Keep a schedule of dates, amounts and the source of funds, and see our round up on the gift rule many families overlook. With most unused pension funds coming into the Inheritance Tax net from April 2027, funding education from income or other assets may become more attractive for some grandparents.

How does student finance work in 2026/27?

For eligible new full time undergraduate students from England, the Student Loans Company states that the maximum Tuition Fee Loan for the 2026/27 academic year is £9,790 for courses starting before January 2027, and the maximum Maintenance Loan for a student living away from home in London (not eligible for benefits) is £14,135. Maintenance support depends on household income, so many families are expected to top up living costs.

Rules differ across England, Scotland, Wales and Northern Ireland, so check those that apply to where the student lives. In England, the Lifelong Learning Entitlement is being introduced for eligible courses starting on or after 1 January 2027, changing how tuition and maintenance finance work. Students starting in England now join Plan 5, repaying 9% of income above £25,000, with any balance written off after 40 years. A university plan made several years ago may need updating.

What if something goes wrong?

An education plan should survive the unexpected. Ask what would happen if a parent's income stopped through illness or death, if markets fell just before fees were due, or if fees rose faster than expected. Life cover, income protection and critical illness cover may all have a role in making sure the commitment can still be met. Our guide to protecting your family, wealth and future explains the options.

A ten point education funding checklist

Frequently asked questions

Do private school fees have VAT in 2026?

Yes. Since 1 January 2025, education and boarding services provided by private schools for a charge have generally been subject to VAT at 20%. The exact effect on your bill depends on the school's own pricing.

What is the Junior ISA allowance for 2026/27?

£9,000 per child. Anyone can contribute within that limit, and the money belongs to the child, who can take control of the account at 16 and withdraw it at 18. Withdrawals are generally unavailable before 18.

Can grandparents pay school fees without Inheritance Tax?

Often yes. Regular fee payments made from a grandparent's surplus income can be immediately exempt under the normal expenditure out of income rule, provided the conditions are met and good records are kept. The £3,000 annual exemption can also be used.

How much is the maximum Maintenance Loan in 2026/27?

For an eligible student from England living away from home in London and not eligible for benefits, the Student Loans Company quotes a maximum of £14,135. Outside London and for students living at home, the maximum is lower, and the amount depends on household income.

Is it better to save for school fees or overpay the mortgage?

It depends on your mortgage rate, how soon the fees are due and how much flexibility you need. Mortgage overpayments are hard to get back if you need the money, so for fees due within a few years accessible savings are usually more practical.

This article is for your general information and use only and is not intended to address your particular requirements. It should not be relied upon in its entirety and shall not be deemed to be, or constitute, advice. Although every effort has been made to provide accurate and timely information, there is no guarantee that it is accurate on the date it is received or that it will remain accurate in the future. Thresholds, percentage rates and tax legislation may change in subsequent Finance Acts. Levels and bases of taxation, and reliefs from taxation, are subject to change, and their value depends on individual circumstances. Unless otherwise stated, figures relate to the 2026/27 tax year. The value of your investments can go down as well as up, and you may get back less than you invested. A pension is a long term investment not normally accessible until age 55 (57 from April 2028 unless the plan has a protected pension age). The Financial Conduct Authority does not regulate estate planning or tax advice.