It seems unfair to deny the skip because it may upset the older child but I can see the problem. Could the younger do most of her stuff in the higher grade but stay in her current grade for art, music, PE etc? It will probably come up again though.
Ds6 used to get upset last year when he was in a composite class and the kids told him he must be a year 1 because of his age. The fact he was one of the tallest in the class didn't seem to make much difference. Kids know how old the kids in their class are even if size doesn't tip them off.
