BES frenzy hits peak

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The Independent Online
----------------------------------------------------------------- Contracted exits ----------------------------------------------------------------- Company Guarantor Adjusted* Six-month five-year exit price return (%) Accumulus III Corpus Christi/Co-op Bank 11.1 76p Airways III Airways Hsng Soc. plus CB 13.4 n/a A Priori Britannia n/a 74p Barrat Fix. GF Barrats/Lloyds Bank 12.9 n/a Bessa Bristol & West Bristol & West 10.9 73p Bessa Cambs. Newnham/Barclays 12.1 75p BNP Flexible BNP Mortgages/BNP 10.9 75p Cavendish Gleeson Gleeson 10.9 75p Govett Asset Sanctuary Hsg, part CB 12.9 n/a Builder IV Homeshare NatWest Bank 11.6 74p Homes for Shaftesbury 13.4 n/a Littlehampton House the Peabody Trust 12.9 n/a Homeless V Image II* IMP/Bank of America 12.9 n/a Lancaster Uni L'caster/Royal Bk of Scotd 11.5 74p Leeds Perm. Leeds Perm. Bdg. Soc. n/a 74p Leeds&Holb. Leeds & Holbeck n/a 74p N&P II N&P Building Society n/a 74p N&P Multiple Nat & Provincial n/a 74p Oriel Res. Oriel College 10.9 77p Portman Portman Building Society n/a 74p Prowting Flex. Prowting/NatWest 11.1 74p Res. at Bristol Bristol Uni/Barclays 10.9 75p 4th Univ. Gonville Caius/Cash Back 11.1 73.5 Cash Backed Yorks. Flex.* Yorkshire n/a 75p Wish II Circle 33/Metrop., part CB 13.6 n/a Cavendish Gth HMC 13.57+ n/a Uncapped Gth Bk of Scotland/Chartdale Gp 14.42+ n/a ----------------------------------------------------------------- *Assuming six months' delay in tax relief. Annual returns calculated for 40% taxpayer. CB - cash backing. GF - Growth Fund. ----------------------------------------------------------------- Source: Allenbridge Group, Tel 071-409 1111 -----------------------------------------------------------------

THOUSANDS of higher-rate taxpayers are expected to sign up for Business Expansion Schemes this weekend. They are being whipped up into a frenzy by speculation that the Chancellor will put a stop to 'loan-back' schemes in the Budget on Tuesday, writes Neasa MacErlean.

Calls from the shadow Chancellor, Gordon Brown, to do away with loan-backs have only added to the frenzy, according to Anthony Yadgaroff of Allenbridge Group, the BES adviser.

Loan-back schemes have turned the one-time specialist BES market into a sector with mass appeal to the wealthy. They have in effect changed the BES from a five-year investment vehicle into a six-month investment.

Instead of waiting five years to get back their capital, investors can take an early exit in the form of an early loan. But the loan is only a loan by name, to comply with the letter of the BES law, which insists tax relief will only be given if funds are invested for five years. In practice, investors can see the loan and their tax refund as an early redemption of their capital - enhanced by an annualised return of about 30 per cent on their investment.

Sponsors and advisers are keeping their offices open all weekend in anticipation of the 'complete frenzy and crescendo' that, according to Charles Fry of the sponsors and advisers Johnson Fry, always precedes the Budget. Johnson Fry says it has received 10,000 telephone calls and taken an average of pounds 10m a day in BES investments in the last month.

If new loan-back schemes are outlawed in the Budget, Johnson Fry and its competitors, Close Brothers, expect a lull in the market for a few weeks.

Craig Reader of Close Brothers believes there is a '50-50 chance' of the Chancellor outlawing loan-backs. Close Brothers and the other sponsors will, therefore, close off all their loan- back schemes on the eve of the Budget if they have not reached capacity before then.

The problem for many would- be investors has been to get on to a BES scheme's subscription list before it closes. But for people who want to have the option of a six-month loan-back there are still several schemes to choose from. The Allenbridge Group believes that this part of the BES market is very well served. 'Every deal at six months is to be recommended,' Mr Yadgaroff said. The Yorkshire Building Society scheme - Yorkshire Flexible - is particularly attractive. Like some other loan-back schemes, it offers other potential exit dates after a year, two years and three years. But it also offers two more exit dates - after 18 months and 30 months.

There is some concern that the Chancellor will go so far as to outlaw existing loan-back schemes. If so, existing investors would lose their tax relief if they went for an exit option before the end of the full five-year period. It is hard to imagine this Chancellor going out of his way to create such discontent in the constituency of the wealthy.

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