This means investing in a PEP or, from 6 April, in an Individual Savings Account (ISA). What are the PEP rules governing what you can invest?
You must be over 18 and a UK resident. Although you do not need to pay tax to invest in a PEP, those who benefit most are higher-rate taxpayers. You do not have to declare a PEP to the Inland Revenue: the taxman will know about your investment anyway.
Up to pounds 6,000 can be placed in a "general" PEP, which usually consists of so-called pooled funds such as unit and investment trusts, plus a further pounds 3,000 in a single company one. It is also possible to choose your own shares, placing them in a "self-select" PEP available from stockbrokers.
PEPs were first aimed at promoting investment into UK companies. It is still the case that you must have at least 50 per cent of your general PEP in UK- or EU-based companies. Up to pounds 1,500 can go into "non-qualifying" trusts which do not satisfy the 50 per cent rule, but this must be within the same PEP.
You can only have one PEP manager a year, although your single company and general PEP manager can be different. Annual PEP allowances cannot be carried over. If you miss the 5 April deadline, there will be no more PEPs. Husbands and wives can each have up to pounds 9,000 in a PEP.
Income from a PEP is free of tax. Part or all of a PEP can be cashed free of tax, but once this is done it cannot be taken out again. It is possible to transfer a PEP from one manager to another and retain its tax-free status. But this must be done by the new PEP manager. Selling up and starting again yourself will invalidate your PEP allowance.
The Independent's 26-page `Guide to PEPs' will help you to pick the best one. For your free copy of the guide, sponsored by Scottish Widows, call 0345 678910Reuse content