Available from 6 September 1993, the product could not be sold after 31 December 1993. Each tranche was offered for sale for a maximum of 40 days. The first tranche tied in with the start of the educational year and was available from 6th September to 4th October 1993.
- Eligible clients; UK Tax resident investors (and Crown Employees Overseas) age 18+. Plans were only on single life basis.
- The product is a lump sum investment product with a fixed five year term, designed to take advantage of Business Expansion Scheme taxation incentives investing in residential property linked to Oxford University Colleges.
- Zurich Marketing Services acted as distributors and Sponsors of the BES introducing investors to the BES Companies, sponsored by Hodgson Martin, an Edinburgh based Investment Management Company.
Each BES Company buys residential properties from AA Oxford College. The College in turn undertakes to buy back the properties at or about a specified date in the future at a price determined by the price of securities and designed to provide a return related to the original investment and to the performance of the FT-SE 100 Share Index. Growth in the FTSE 100 Share Index was locked in on an annual basis, a fall will be treated as nil growth. The growth in the FTSE 100 index was calculated and locked-in on an annual basis at 72% of the original investment. A fall in the FT-SE over a given year is treated as nil growth.
The set dates were 8th October each year (or next working day if 8th October is not a working day). The Colleges backed this commitment by investing appropriate amounts on deposit and in options with acceptable counterparties. This will be provided by an MTN with an AA institution and an option with UBS who are AAA.
The fixed return was set at 75p to give a money back return to standard rate taxpayers. The FT-SE 100 Gearing is .72 and reflects the charges levied by each party and the market conditions at the outset of the product.
The product could not be sold after 31 December 1993. Each tranche can be offered for sale for a maximum of 40 days.
The first tranche tied in with the start of the educational year and was available from 6th September to 4th October 1993.
There were four BES companies in the first tranche, these and the funds available to each company are set out below:
The Residence at Jesus College Plc - £2,470,000
The Residence at St Catherine's 1 Plc - £5,000,000
The Residence at St Catherine's 2 Plc - £4,648,000
The Residence at St Hilda's Plc - £4,965,000
The product has a 5 year term with maturity on 8th October 1998. (5 years from the Share Allocation date of 8 October 1993). and is designed to provide a return of 75p per £1 invested and an opportunity to participate in locked-in gains in the FTSE 100 Share Index.
- Death Benefit ~ the investment does not end on death but passes with the Client's estate.
There are no specific funds available although, at outset, clients had the opportunity to select one of the four different BES Companies (linked to specific Oxford University Colleges) in which to invest.
- The initial charge is 9.9% (Zurich 6.9%, Hodgson Martin 3.0%). The Universities payment comes from the difference between the purchase price of the properties and the funds they need to invest to provide the return.
- There is an annual Management Charge of 0.3% split 0.2% to Hodgson Martin, 0.1% to Zurich. There is a realisation fee of 0.5%, 0.4% to Hodgson Martin, 0.1% to Zurich.
Taxation and Trusts
Taxation, under the BES rules, investors could benefit from tax relief on up to £40,000 of their investment. The proceeds emerge tax free from the BES. In addition, for applications prior to 5 October 1993 Investors could carry back unused tax relief to the 92/93 tax year up to a maximum of 50% of their investment, or £5,000, whichever is the lower.
To qualify under the BES rules, property must either already be in existence but be tenanted after the BES shares have been issued, or be newly built and not yet tenanted. The BES company will be liable to Corporation Tax on its' profits, and this will be reflected in the FT-SE Gearing. provided the BES company qualifies, proceeds from the sale of BES Company Shares will be tax free in the hands of investors. Two key elements in the taxation of the BES are the availability and timing of tax relief on the investment and the continued qualification of the BES company.