Fresh BES incentives as year-end deadline nears: A scheme linked to interest rates follows the success of FT-SE index-based offers. Alison Eadie reports

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The Independent Online
New incentives were added to some of this week's Business Expansion Scheme issues in efforts to win investors' attention ahead of the year-end close-down of the schemes.

Close Brothers launched the first BES linked to interest rates, similar in concept to earlier schemes linked to the FT-SE 100 index. Its 'mortgage protector' BES aims to raise pounds 15m for student accommodation at Lincoln College, Oxford. Bessa Lincoln College offers security against interest rate rises to investors with business borrowings or variable mortgages.

The interest rate protection plan gives a fixed return of 80p per pounds 1 share plus a variable return dependent on interest rate movements. The return is 1p per quarter for each 1 per cent rise or 20p over five years for each 1 per cent rise. The investor keeps the extra even if interest rates fall back.

Without interest rate protection the cash-backed return is 120p per pounds 1 share. This costs a basic-rate taxpayer 75p, and a higher-rate taxpayer 60p.

Nationwide Building Society, in conjunction with Merrill Lynch, has issued a pounds 30m assured tenancy with a novel FT-SE 100 index link. Investors opt either for a 121p fixed return or 60p plus 1.2p per share for each 1 per cent rise in the index calculated at the highest closing level achieved on any day in the five-year life of the scheme. Previous FT-SE 100 schemes have given a higher return but calculated the index differently.

John Spiers of BESt Investment says the idea is good, but the target may be too demanding and make the scheme too expensive.

Johnson Fry has launched its third loan-backed BES for National & Provincial Building Society. It gives a defined exit of 117p and 85 per cent of the growth in value of shares based on the property upside. The benefit of early tax relief - the N&P BES started trading in July - increases the exit to an actual return of 123.5p, when compared with a BES starting in November, Johnson Fry says.

Because the scheme is loan-backed, investors also receive their money five years and one day after issue, rather than five years and one month.

Another offer from Johnson Fry is a pounds 10m scheme in conjunction with North British Housing Association giving a contracted exit of 120p, but an early entry price of 99p per share, boosting returns to 121.2 per cent.

Capital for Companies' Ridings 111 BES in conjunction with Persimmon, the house-builder, gives a contracted 120p exit plus 50 per cent of the property surplus. It has a full bank guarantee from Bank of Scotland.

Terrace Hill Capital's Accumulus Froebels cash and securities-backed BES offers an exit of 120p.

On the commercial front, Cafe Poppy is looking for pounds 850,000 to finance a chain of brasseries, offering French food with a Thai flavour in inner London. David Cleave, founder and managing director, who has invested pounds 100,000 of his own in Cafe Poppy, says there are a lot of good value properties around.

Smiles Traditional Inns is raising its second pounds 750,000 BES to buy up to 10 pubs. Smiles Brewing Company has an option to purchase the pubs after five years at a price giving investors a net cash distribution of 175p per pounds 1 share. There is no certainty the option will be exercised.

(Photograph omitted)

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