Reaping the tax rewards from your BT3 shares: Case where personal equity plan hype may be justified

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The Independent Online
SHARE certificates from the BT3 sale should start arriving on the doormat from Monday, but share dealers do not expect to be overwhelmed by people wanting to sell.

Many investors are keen to hang on and reap the tax rewards of putting their BT3 shares into a personal equity plan. PEPs are promoted on their tax-saving potential. If you invest in shares held in a PEP, dividends and capital gains are tax free.

In many cases the marketing patter ignores the fact that the charges you have to pay for the PEP outweigh any tax saving. But with BT3 offering hefty dividends - the income tax saving as well as any capital gains tax incentive is particularly attractive - this is one time that the hype for PEPs seems justified. The costs are likely to be more than compensated for by the tax benefits.

Katrina Ellis, a spokeswoman for the PEP managers Johnson Fry, said: 'Transfer your shares into a PEP before 16 August to receive the generous first dividend of 9.45 per cent tax-free.

'What is more, if you hang on to your shares you also get all future dividends tax-free as well as any capital gains.'

You can subscribe for new issue shares, including privatisation issues, and transfer them into a PEP provided the shares are transferred within six weeks.

Despite the reluctance of many investors to sell, share dealers are flooding the market with special cut-price offers.

The real bargains appear to be in postal service dealing - which is fine if you do not mind being at the mercy of the Post Office as well as the stock market, as you do not know in advance the price you will get.

It pays to compare costs. A postal dealing offer that is good value to sell a couple of hundred pounds worth of BT3 shares can be enormously expensive if you want to dispose of pounds 10,000 worth.

And, while it is cheaper to sell small amounts by post, it is often more cost-effective to sell large blocks by telephone.

Lloyds Bank Share Shop will offer a 'low-cost' postal share- dealing service from 26 July to 29 October, not just for BT3 shares but also for the ordinary shares of any company listed on the London Stock Exchange.

If you want to sell pounds 500 worth of BT3 shares the commission is pounds 11 - the minimum charge for the service. To sell pounds 10,000 worth the commission is pounds 75.

Abbey National is also offering a special 'discounted scheme' for postal sales of BT3 shares from 22 July until 29 October. To sell pounds 500 worth of shares the cost is pounds 12.50. With Abbey's telephone dealing service the cost is pounds 24.50.

If you sell shares worth pounds 10,000 the commission is pounds 100 by post and pounds 80 by telephone.

A spokesman for Abbey said: 'The postal service is targeted at small investors. If someone did have pounds 10,000 worth of shares to sell we would point out that the telephone service is cheaper'.

Skipton Building Society is a good bet for postal and telephone dealing. There is a flat fee of pounds 9 whatever the value of the shares being sold by post. To sell pounds 10,000 worth of shares by telephone the commission is pounds 55.

There are special dealing periods for BT3 shares. Shares traded up to yesterday are for payment on 11 August. Those traded between 26 and 30 July are for settlement on 18 August.

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