Money: Still time to guarantee your exit price with a BES: Caroline Merrell looks at the schemes on offer as the year-end deadline nears

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The Independent Online
Business expansion schemes offering guaranteed returns will finish at the end of this year, but for anyone using the post the final date for posting cheques is Christmas eve.

There are nearly 90 schemes. The BES offers two types of tax break - investment into the scheme up to a maximum of pounds 40,000 is eligible for full income tax relief and any capital gain within the scheme is free from tax. The Government's replacement for BES, the Enterprise Investment Scheme, which was announced in the Budget, only offers tax relief of 20 per cent on the income plus capital gains tax relief.

The contracted-exit BES promises investors a guaranteed exit price after five years of up to 135p, with an average of about 122p. Taking tax relief into account this gives higher rate taxpayers annual returns of about 13.5 per cent and basic rate payers 9.5 per cent.

The schemes invest in property where a body, perhaps a housing association or a university, is contracted to buy back after the five- year span of the scheme, at a certain price.

Some property schemes also offer exposure to equities, sacrificing some of the guarantee but with the possibility of increased returns. The new launches include Pilgrims Assured Homes (sponsored by Downing Corporate Finance), which aims to raise pounds 5m to buy residential properties.

The Bedfordshire Pilgrims Housing Association has agreed to buy the properties back after five years at an agreed price of pounds 1.28. The annual return for top-rate taxpayers is 14.3 per cent. Chiltern Homes III is similar - aiming to raise pounds 3m to buy residential properties. The Chiltern Hundreds Housing Association pledges to buy back the properties at a contracted-exit of pounds 1.28.

Nick Percival of BESt Investment, an independent financial adviser specialising in the schemes, said people should take note of the quality of the covenant within the scheme. For example, if the body or association contracted to buy the properties after the five years goes bust, many schemes will have a contract with a bank or building society honouring the guaranteed price.

Investors should also be aware of the expected date of authorisation from the Revenue for the scheme. If the date is before about February then PAYE investors can start to feel the effect of the tax relief in their pay cheques straight away, as the Revenue can alter their tax code in time for this tax year. If the scheme receives authorisation after that date PAYE investors may have to wait a few months before the tax relief starts to come through.

One of Britain's biggest BES sponsors, Johnson Fry, has launched four guaranteed-exit schemes this week and intends launching three more in the run up to the deadline. Johnson Fry is also offering a service for elderly investors, which guarantees returns in the event of the investor dying during the five-year life of the scheme.

----------------------------------------------------------------- ARRANGED-EXIT SCHEMES: BEST BUYS ----------------------------------------------------------------- Exit price 5-year returns p 25% 40% Bessa RBS 125 10.0 14.0 Bessa Portman 121 9.7 14.3 JF Mortgage Express 121.2 9.8 14.5 S&P Bessa B&W III 121 9.7 14.3 Tweed Premier Return 122 9.5 13.5 Bristol Residences 122 9.6 13.7 Ridings III *120 9.2 13.2 Derby Student Halls II 123 9.7 13.8 Chiltern Homes III 128 10.2 14.2 Pilgrims Assured 128 10.2 14.2 Foundation 30 (income) 35 9.6 11.2 Banner New Homes *135 11.5 15.5 *Minimum return Recommended by BESt Investment -----------------------------------------------------------------

BESt investment 071-936 1453.

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