The Downing protected approved EIS fund will aim for growth and the preservation of capital by investing in unquoted UK companies that own assets such as pubs, children’s nurseries, health clubs and stock. This will enable the fund to take a charge over the assets to protect their investment.
If a company defaults on a loan the VCT makes or fails as an investment, asset backing will enable the VCTs to recover their costs by selling those assets. Investments will also be made in companies with predictable revenue streams in sectors such as the media and construction.
The manager has already identified suitable opportunities, which should enable the fund to become fully invested within a short period.
Downing says the fund may be suitable for high net-worth and sophisticated clients who are looking for EIS tax benefits. Investors can defer tax on capital gains realised since July 2005 that be subject to CGT up to 40 per cent, but will be taxed at a flat rate of 18 per cent if invested into the EIS fund for three years. Investors will also get 20 per cent income tax relief on the amount invested if held for at least three years and IHT relief should apply if the fund is held for at least two years at the date of death.
However, Downing’s aim of preserving capital through asset backing within the higher risk area of unquoted companies may produce more modest returns than some EIS funds. Also, there is no guarantee that the EIS qualifying investments Downing has identified will be made within the expected timetable.