Paying for a child’s education can feel like a big commitment. Whether you are covering school fees or helping with university costs, there are tax-efficient strategies that can help. This blog looks at methods for parents and grandparents to plan effectively during the 2025/26 tax year. We will cover junior ISAs, child pensions, trusts, dividends, salary sacrifice and gifting rules. We will also mention inheritance tax (IHT) considerations, along with a few practical examples.
Why early planning matters
Education costs can rise quickly. The Independent Schools Council reported average annual private school fees of over £15,000 in recent years, and many universities in the UK charge up to £9,250 a year for tuition. These figures often increase, so it makes sense to plan ahead. If you spread costs and use allowances efficiently, you can reduce the overall strain on your personal finances.
Junior ISAs
A junior individual savings account (Junior ISA) is a popular option for parents who want to save for a child’s future. For the 2025/26 tax year, the annual subscription limit is expected to remain at £9,000, though this may change if the government updates its guidelines. You will not pay income tax or capital gains tax on any returns within the junior ISA.
There are two main types of junior ISAs: cash and stocks & shares. Families often like the simplicity of a cash junior ISA, although a stocks & shares account may offer greater growth potential over the long term. If the child is under 18 and lives in the UK, they will qualify.
We encourage parents and grandparents to contribute regularly and review investment performance. You will find more details on the HMRC website.
Pensions for children
It might sound unusual, but you can set up a pension for a child. This approach can build a strong foundation for their future. Contributions to a child’s pension attract tax relief, up to £3,600 per year (gross). That means you pay in £2,880 and the government tops it up by £720 (assuming 20% tax relief).
Although your child cannot touch their pension until they reach the standard pension age, you are giving their investments decades to grow. Even modest amounts can become significant with compound interest over time.
Trusts and gifts
Trusts can help you set money aside for a child’s education while controlling when and how they gain access to the funds. Parents or grandparents can transfer assets into a trust, which then holds the assets for the child’s benefit. You can use discretionary trusts or bare trusts, depending on your goals. A discretionary trust lets trustees decide how to distribute funds, while a bare trust names the beneficiary outright.
You may need to consider potential inheritance tax (IHT) implications. Transfers into a trust are often considered potentially exempt transfers, which can become free of IHT if the donor survives for seven years. It is best to seek professional advice about the type of trust that meets your needs, as the rules can differ.
Dividends and salary sacrifice
If you run a limited company, paying dividends to family members (who are shareholders) can be a strategic move. The dividend allowance for 2025/26 has been dropping in recent years, currently sitting at £500, so check the current figure as you plan. Although dividends are taxed at different rates than salary, this approach might still reduce the total tax you pay if shares are held in the child’s name. However, there are rules about who can hold shares, especially when children are under 18, so be sure you meet any legal requirements.
Salary sacrifice is another method if you are employed (or if you employ yourself). By reducing your salary and redirecting that amount to certain benefits, such as pension contributions, you can often lower your income tax and national insurance contributions. This might free up personal funds for your child’s education without increasing your overall tax burden.
Gifting rules and inheritance tax
Some parents and grandparents prefer to gift money directly to children or grandchildren. If you stay within your annual exemption (currently £3,000 a year), you can do so without affecting your IHT status. You can also make small gifts of up to £250 to any number of people each tax year, as long as they have not benefited from other exemptions. For larger gifts, you must live for another seven years for them to be outside your estate for inheritance tax purposes.
These rules can help your family if you plan carefully. For instance, if a grandparent gives £3,000 each year for a decade, they can contribute £30,000 in total without worrying about immediate inheritance tax effects.
Practical examples
- Grandparent trust for school fees
A grandparent sets up a bare trust for a grandchild, transferring £30,000 initially. If the grandparent survives for seven years, the amount leaves their estate for IHT purposes. The trust then pays out portions each term to cover school fees. The parent monitors the trust investments to ensure the balance grows sufficiently to meet future fees. - Junior ISA for university
A parent contributes £200 a month into a junior ISA from the child’s birth. By the time the child is 18, those funds might be enough to help with university expenses, depending on the growth rate. The money remains tax free, and the child can access it when they turn 18. - Small gifts over time
A couple decides to use their annual exemptions. Each spouse can gift £3,000 a year to their child, which means £6,000 combined. Over five years, that builds up a substantial pot for future tuition costs, free of inheritance tax concerns.
How we can help
We have many years of experience supporting families with financial planning for future education costs. We are always ready to discuss your personal circumstances and suggest practical solutions. Our team can help you decide whether a junior ISA, a trust or dividends offer the best route for your situation. We can also provide payroll support if you are considering salary sacrifice and want a smooth approach.
Our tax planning services cover everything from IHT to compliance. We believe small steps over time can make a big difference in your child’s or grandchild’s future.
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A little preparation can make school fees or university bills more manageable. Before you commit to any path, speak to a professional who understands both your family’s goals and the 2025/26 tax rules. You will benefit from having a clear plan in place.
If you would like help with any of the strategies mentioned for tax-efficient ways to fund your children’s education or want to explore tailored options for your family, call or email our team. We can talk about your goals, work out your allowances and point you in a sensible direction.