Is there any difference in Grandparents paying the school fees directly to the school or reimbursing the parents?

[steve234]

A quick question - and I have seen many posts talk of using trusts etc but I think this is a more simple query (if there is such a thing). Our parents have offered to pay our son's school fees. They are fortunate enough to be able to pay the fees out of their income without impacting their standard of living or reducing their estate. My question is, whether it matters whether they pay the fees directly or reimburse us as parents?

[maths]

I seem to recall this was discussed at length sometime in the past but can't locate the discussion.

If the payments qualify as exempt under the normal expenditure out of income then it would seem irrelevant how the payments are made.

If the exemption doesn't apply any such payments would constitute PETs however paid. Presumably parents have contracted with school re the fees. Grandparents can either give cash to parents who settle fees or grandparents pay school directly thus settling a debt of the parents.

[AGoodman]

I agree I can't see any difference.

There are some quite complicated issues where a trust pays school fees over whether the trust is benefitting the child or the parent (because the fees are the parent's contractual obligation) but none of them apply here.

[Sophie K]

I agree it's irrelevant if falling under the normal expenditure out of income exemption.

However, it is my understanding that if they paid the school directly it would be a CLT, because it's not increasing the estate of an individual and therefore cannot be a PET (see IHTA84 s.3A).

[maths]

On the basis that the parents contracted with the school for the relevant school fees (as would be normal) then the payment of the fees by the grandparents does increase the estate of the parents as they (i.e. the parents) no longer have a contractual liability to discharge.