According to The Sun, United will not exercise their option to extend the 25-year-old's contract by another year.
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Sancho will therefore leave the club on a free transfer when his contract expires.
United have decided to forego a potential transfer fee for the winger.
Management do not want to risk having to finance the attacking player's salary, which is around €230,000 per week, for another year.
Sancho is currently on-loan at Aston Villa, where he has one goal in 25 competitive appearances.