School of hard fees

PAYING school fees is enough to put you off parenthood. There are few tax breaks and the cost of a mortgage can be a mere bagatelle by comparison. Preparatory schools cost, on average, pounds 2,100 to pounds 6,000 a year, according to Isis, the Independent Schools Information Service, and more if your child boards.

Fortunately, there is some help available:

q The Assisted Places Scheme subsidises the fees of more than 30,000 children at independent secondary schools in England and Wales and 3,000 in Scotland, and numbers are set to increase.

The subsidy is means-tested and on a sliding scale. Details from The Department of Education and Employment, Assisted Places Team, Mowden Hall, Darlington, Co. Durham, DL3 9BG (01325 392163), or (for Welsh schools) Welsh Office Education Department, Cathays Park, Cardiff, CF1 3NQ (01222 825111). In Scotland contact The Scottish Office, Education and Industry Department, Victoria Quay, Edinburgh, EH6, 6QQ. (0131 556 8400).

q You may also be able to get your employer to pay, or persuade your child to win a scholarship. Employers sometimes help with boarding fees but generally only if you are required to work abroad, for example, if you are in the armed services or work for a multinational company.

Scholarships are available but are unlikely to cover all the fees. They are listed in The Independent Schools Yearbook and (for schools that are members of Isis) in Choosing Your Independent School (from bookshops or Isis, telephone 0171-630 8793).

Individual schools will also tell you what is on offer. In addition, the guides list bursaries. These offer financial help but are not awarded according to exam performance. They go to, for instance, sons or daughters of the clergy or the armed forces.

Boys (sometimes girls, too) can apply to choir schools offering choral scholarships after voice trials. For a list of schools and advice contact The Administrator, The Choir Schools' Association, The Minster School, Deangate, York YO1 2JA. Music scholarships at senior schools are listed in Music Awards at Independent Schools (from music shops or MMA Awards Book, 29 Lillian Road, London, SW13 9JG for pounds 9.50 including p&p).

q If you have to pay the fees yourself, ideally you should have a lump sum to invest now, with "now" being several years before your child starts his or her education. But what you may actually have is no capital and a child about to start school. Lump sums available in advance can go into Tax-Exempt Special Savings Accounts (Tessas), National Savings or with- profits endowment policies if you are risk-averse; Personal Equity Plans, unit or investment trusts if you are happy to take some risk.

One method of funding fees suggested by some advisers is to buy investment trust zero dividend preference shares. These offer predetermined levels of growth and can be bought so they mature in successive years as fees become due. The growth rate is equivalent to around 7.5 per cent a year, which should be tax free unless you are subject to capital gains in that year.

q Isis lists addresses and phone numbers of financial advice companies specialising in school fees planning on a leaflet available from National Isis, 56 Buckingham Gate, London, SW1E 6AG. Enquire how these companies charge, whether by flat fee or by commission, and contact more than one.

q Lump sums that are put in an educational trust plan for your child's education earn a tax-free return. Your money buys an annuity that pays the same set amount tax free each term (or an amount increasing at a set rate), for an agreed number of years.

You have the advantage of knowing exactly what you will get and when but the money does have to be used for the educational benefit of a named child. It may be possible to transfer benefits between children but if you surrender the plan there will be a potential tax liability on any gain.You can plan through an existing educational trust, such as that offered by SFIA, a specialist financial adviser, or Save & Prosper, an investment company. But a change in government could remove such trusts' charitable status, denting the return on your annuity.

q The school you have selected may run a "composition plan". Again, the lump sum you pay in generates a set, termly payment for a set number of terms. The bonus is that you may get a reduction in fees for paying in this way. A disadvantage is that you may change your mind about the school, so make sure the funds can be transferred with interest if necessary. The details of composition plans vary.

q If you are doomed (as, apparently, three-quarters of parents with children at independent schools are) to finding fees out of existing income, the earlier you start saving the better. It may cost pounds 71,700 to send a baby born in 1995 to a senior school with fees of pounds 1,500 a term. (That assumes fee inflation of 6 per cent, as school fee inflation tends to outstrip general inflation.) SFIA, the largest specialist school fees adviser, believes you must put pounds 240 a month into its school fees PEP for the next 17 years to fund that level of fees.

q If your child is ready to start school your only option may be to borrow. You could try extending your mortgage, the cheapest method, or there are various tailor-made plans available, some offering unsecured lending.

q Charities pay for some children but funds are limited. To find out about grants try the Educational Grants Directory by the Directory of Social Change (0171-209 5151) or The Directory of Grant-Making Trusts by the Charities Aid Foundation. Isis also gives advice. Contact Educational Grants Advice, Isis, 62 Park Lane, Norwich, NR2 3EF.