Personal Equity Plans PEPs - A Guide

Personal equity plans PEPs were tax-efficient investments available in the 1980s and 1990s. Many people invested in PEPs and many still have investments in PEPs now. The tax rules have changed since PEPs were withdrawn but there are still investment options you can explore without losing your PEPs tax advantages.

What are Personal Equity Plans PEPs?

Personal Equity Plans PEPs were available for investment between 1987 and 1999 allowing you to enjoy the profits from stockmarket related investment free of income tax and capital gains tax.

When PEPs were introduced in 1987 by the then Chancellor Nigel Lawson the idea was specifically to encourage people to buy company shares remember popular capitalism but an initially limited range of possible investments in PEPs was ultimately widened to include unit trusts investment trusts and corporate bonds.

Unfortunately PEPs appear to have been such a great idea that the Inland Revenue got a bit hot under the collar about all the tax it was missing out on. This means you cant get any more PEPs but you may retain any investments you have already made under the tax-shelter umbrella offered by PEPs which is now similar to that offered by Individual Savings Accounts ISAs.

What did Labour promise and what did it do to PEPs?

New Labours 1997 election manifesto said "We will introduce a new individual savings account and extend the principles of TESSAs and PEPs to promote long-term saving. We will review the corporate and capital gains tax regimes to see how the tax system can promote greater long-term investment."

In practice this meant the abolition of TESSAs and PEPs two successful tax-efficient ways of saving and investing to be replaced by ISAs with less attractive tax breaks and an annual limit on total contributions significantly lower than the £10800 that could have been sheltered in PEPs and TESSAs on an ongoing annual basis.

Have PEPs gone for good?

You may no longer invest fresh funds via PEPs. The PEPs scheme was withdrawn with effect from April 6th 1999 the start of the 1999-2000 tax year. At the same time the new ISAs came into being. However any savings already invested or sheltered in PEPs at that point are allowed to remain in PEPs with tax breaks now similar to those offered under ISAs.

You may well be one of millions of people who invested in PEPs in the 12 years they were on offer and are now left wondering what to do with the savings in PEPs that you have accumulated.

Estimates vary with claims in Parliament that some £60 billion had been salted away under the tax-efficient wrappings of PEPs and TESSAs Hansard 101198 while Planned Savings 240399 reported that prior to their last year of availability a total of £83.34 billion had been subscribed to PEPs.

Many of us are likely to have built up our PEPs portfolios on a piece-meal basis and it may be time we reviewed our holdings.

How much could I have squirreled away in PEPs?

Initially you would only have been able to invest via PEPs in UK equities and at least 75% of your PEPs investment had to be directly held in equities. However the rules were changed gradually over the lifetime of PEPs.

The direct investment requirement was dropped qualifying investment status for PEPs was extended to European Union shares and part of your PEPs investment could also be in non-qualifying investments up to a maximum of £1500 in non-UK or EU invested funds.

Corporate bonds and preference shares were also introduced allowing you to invest in fixed interest PEPs. Separately a second scheme was introduced allowing you to invest specifically in shares in just one company in what were called single company PEPs.

Had you invested the maximum allowable each year into PEPs you would have been able to shelter a total of £88200 from the taxman.

2009-03-09 16:18:41 © Moneyextra.com