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EIS goes Down the pub

Downing Corporate Finance is raising up to £16m to invest in an enterprise investment scheme that will invest in a portfolio of freehold and long-leasehold pubs.

The Downing Pub EIS fund 1 will invest in two EIS qualifying companies set up to buy, refurbish if necessary and operate portfolios of pubs.

This fund targets returns after five years of £1.10 for each for each net 70p invested equates to an annual tax-free return of 9 per cent, after tax relief. Downing says this is equivalent to 15 per cent a year gross to a 40 per cent taxpayer or 18 per cent gross a year to a 50 per cent taxpayer.

Downing is experienced in both the EIS and pub sectors, having raised around £60m for 12 EIS fund launches in the last four years. It currently manages investments in 36 pubs operated by 12 management teams.

Drawing on this experience, Downing will buy pubs for its new EIS only where it believes there is scope to develop the trade and grow the business. The manager believes that as each qualifying company in which the fund invests will own the pubs, this will reduce the risk relative to EIS funds that have no assets.

There will be no geographical restrictions on the pubs they will buy, but the manager expects to focus on the Midlands and South East England. It may also consider investments in licensed establishments such as restaurants, late-night bars and nightclubs.

Downing expects to benefit from the recent fall in pub prices in that pubs can be bought at below their peak value. The firm intends provide an exit for investors after five years while also providing a rollover option for investors who want to keep holding their shares. However, if there is not enough investor interest in this option to make it worthwhile, an exit will be provided for all investors.

This EIS fund could appeal to investors who are looking for EIS tax incentives. However, some investors may prefer the London bar/restaurant focus of theImbiba Bar and Restaurants EIS fund, while others may wait for the next issue of the City Pub Companies EIS fund, which is due in July.

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