In the Budget, the Chancellor, Norman Lamont, changed the rules for 1992/93 to allow the full pounds 6,000 PEP allowance to go into qualifying trusts, which hold at least 50 per cent of their assets in UK or other EC shares. The pounds 1,500 limit for other international trusts was retained.
The problem arose because the Revenue took the view that investors who chose a non-qualifying trust were barred from putting the balance of their PEP money into qualifying trusts without first buying and then selling other equities. It was possible to get round the restriction by creating a reverse bed and breakfast transaction. The Independent pointed out after the Budget that this was 'a singularly pointless exercise - rather like going from London to Bristol via Edinburgh'.
Inland Revenue says it has now 'changed its interpretation of the rules'. There is no longer any bar to mixing different types of trusts or using cash that remains uninvested from previous years and 'it will not therefore be necessary to arrive at your intended destination via an unduly circuitous route'.
One group particularly critical of the old rules was the Alliance Trust, which has chosen to remain non-qualifying. 'Common sense prevails', said a relieved deputy managing director, Gavin Suggett. 'We shall now give our plan holders the choice of a dozen or so big qualifying trusts and we expect many investors to select two or three to run alongside Alliance and Second Alliance, for which the pounds 1,500 non-qualifying limit remains'.
Jeremy Tigue, director of Britain's largest investment trust, Foreign and Colonial, also welcomed the Revenue's change of heart. 'Up to now we have had to run separate managed share portfolios alongside our non-qualifying trusts to satisfy the rules,' he said. 'Now our PEP investors will be able to choose their own mix from among our eight trusts, although we hope the non-qualifying distinction will eventually be scrapped.'