Tolley’s IHT has an example in the Introduction chapter (possibly para 1.4) about how a chargeable transfer can arise in relation to a grandparent paying school fees. The example is a little unusual, as it assumes that the grandparent will pay a lump sum for the grandchild’s school fees for his/her entire time at the school (ie all years at the school) and that no refund is to be paid back to the grandparent. Schools sometimes like to receive an upfront payment of this sort and will give some sort of discount.
However, if the grandparent is paying the school fees a term/year at a time and out of surplus income, then NEOI exemption may be available, as Stuart says. It seems that if the grandparent pays the fees on an ad hoc basis or does not have sufficient surplus income, then, provided that it is just a term at a time, it seems likely that it will be a PET. Alternatively, the grandparent could pay the money to the grandchild’s parents (which would be a PET, assuming they avoid Quistclose trust type arrangements), who then pay the school (or who may have already paid the school by the time they receive the money from the grandparent).
Paul Davidoff
Moon Beever