It's time for a PEP talk
These plans must be organised by 5 April, warns Neil Baker
Saturday 08 March 1997
Each year every adult is allowed to invest up to pounds 9,000 through a PEP, which means any money you make comes free of income tax or capital gains tax. Up to pounds 6,000 can be put into a general PEP and the remaining pounds 3,000 can be invested in a single-company PEP, which invests in the shares of just one company.
If you don't make use of your PEP allowance, you can't carry it over into the following tax year. Also, you can't put any more money in once the tax year has finished, although any income your PEP generates can be reinvested.
The structure is flexible. All PEPs have to be organised by a plan manager approved by the Inland Revenue. With some PEPs that manager will make all the investment decisions while with others you can phone the manager up and tell him or her which shares to buy and which ones to sell. It depends on how highly you rate your investment skills and how much time you have.
With the most common type of plan the manager will put your money into one or more unit or investment trusts. These are collective vehicles which pool investors' money to buy shares.
Different unit trusts are managed to achieve different aims - they might go for good capital growth, high income, focus on small companies or just make sure they own all of the shares in the FTSE 100. Most PEP managers will be able to put your money into a few different types of fund.
Some trusts are designated as non-qualifying funds because they have more than 50 per cent of their assets invested outside the UK or European Union. They are popular with investors who think they can make gains from overseas share markets. You can put only pounds 1,500 of your PEP allowance into these funds. The remaining pounds 4,500 can go into a regular qualifying fund but the investment must be made by the same PEP plan manager.
Other PEPs don't invest in equities at all. So-called corporate-bond PEPs invest in debt certificates and preference shares issued by companies. These are generally aimed at investors who want to generate income, not build up their capital. Tracker-fund PEPs, such as the one recently offered by GA Life, will try to mirror the performance of the FTSE 100 share index, or a combination of other indices, including the S&P 500 in the United States.
If you want to make use of your allowance this year, your money must be paid over by the end of the tax year on 5 April. It is not enough to simply agree to pay the money. Because this year 5 April is a Saturday, there is even less time available than normal.
But investing in a PEP is a serious business which shouldn't be rushed into at the last minute, especially for first- time investors. The undoubted tax advantages of a PEP account for nothing if, in the pre-election and pre-5 April panic, you invest in the wrong fund, which then falls through the floor. There are a lot of different PEPs available and all the options should be considered, including fund management charges. As a rule of thumb, more than 5 per cent initial charges, or annual management fees higher than 1.5 per cent, are too much.
The Independent has produced a free guide to PEPs. The 32-page guide, sponsored by GA Life, a leading life insurer, is available by calling 0500 125888 or by filling in the coupon below. Copies will take about 10 days to arrive.
Independent Partners; request a free guide on NISAs from Hargreaves Lansdown
- 1 Michael Brown shooting: Amnesty International sends team within US for first time as National Guard deployed
- 2 Greggs Google fail: bakery falls afoul of search engine's algorithms with 'unofficial' logo
- 3 Is this the end of apps? New research says a third of us don't bother to download
- 4 Here’s the damning letter Robin Williams wrote to his Mrs Doubtfire co-star's principal after they expelled her
- 5 Ferguson protests: 90-year-old Holocaust survivor Hedy Epstein ‘arrested’ by police during St Louis demonstrations
Isis threat: Cameron wants an alliance with Iran
Crisis? What crisis? A visiting US doctor gives the NHS a rave review
Ukip MEP calls for reintroduction of death penalty on fiftieth anniversary of last deaths
Russell Brand calls for Israel boycott: Comedian urges big businesses that 'facilitate the oppression of people in Gaza' to pull funding
Michael Brown shooting: Chaos erupts on the streets of Ferguson after autopsy shows teenager was shot six times – twice in the head
World peace? These are the only 11 countries in the world that are actually free from conflict
iJobs Money & Business
£60000 - £75000 per annum + BONUS + BENEFITS: Harrington Starr: Business Anal...
£60000 - £90000 per annum + Bonus: Harrington Starr: Global leading Energy Tra...
£40000 - £60000 per annum + BONUS + BENEFITS: Harrington Starr: CXL, Triple Po...
£45000 - £75000 per annum + BONUS + BENEFITS: Harrington Starr: Harrington Sta...
Day In a Page
A first-floor flat with two bedrooms, a spacious reception room and communal grounds in a leafy part of London
A three-bedroom flat with a spacious rootop terrace and balcony, accessed from a private gated courtyard
A Grade II-listed pile with six bedrooms, stables and 39 acres of grounds in Standlake
A two-bedroom flat with boutique hotel-style interiors, close to the foodie haunt of West End Lane
A two-bedroom flat in a beautiful old vicarage, with many original features, close to the city centre
A three-bedroom 16th-century home with an aga kitchen, private gardens and heated outdoor pool, in Hadleigh
A three-bedrom home in sought-after Queen's Gate Mews, with Italian marble-finished bathrooms
Surrounded by glorious countryside in the village of Udimore, sits this impressive four-kiln oast and barn conversion
A five-bedroom house in the picturesque village of Kettlewell, north Yorkshire
An 18th-century former coaching inn with original staircase, open fireplaces and beams throughout
A Grade II-listed Georgian town house with three bedrooms and a south-facing courtyard, near Arundel Castle
Feel on top of the world at this über chic penthouse on the 37th floor of one of Europe’s tallest blocks.
A Grade II-listed Victorian villa with six bedrooms and two further cottages, all with spectacular sea views
A grade II-listed, Georgian cottage with mature 50ft garden, perfect for summer entertaining
A magnificent Georgian pile with turrets, seven bedrooms, a heated pool and four acres of gardens
Fairoak Farm has five bedroom suites, gym, outdoor swimming pool and golf course
Chic two-bedroom river-fronted flat with a private lift that delivers you directly to your home
A spectacular seven-bedroom Tudor pile, once owned by Henry VIII, with 18 acres of land
A seven-bedroom Georgian property previously used as a picturesque wedding venue
A split-level flat in a church conversion with two en suite bedrooms and 1,200sq ft of living space
A three-bedroom bungalow situated behind an impressive stone wall, £645,000
Windsor Castle overlooks this three-bedroom Victorian cottage located on one of Windsor's smartest roads
Chapel House is a former vicarage with nine bedrooms in the beautiful Upper Wye Valley
A five-bedroom B&B and separate owner's accomodation with potential for conversion
Enjoy summer by the Thames in this two double-bedroom converted warehouse in Rotherhithe village
A one-bedroom, luxury apartment with private gym and concierge service in Moorgate
A four-bedroom house in Hermitage Gardens with three reception rooms and landscaped gardens
A seven-bedroom Grade II-listed property with a separate self-contained apartment
A five-bedroom Victorian house with three reception rooms and galleried landing, £695,000
A six-bedroom farmhouse with five acres of land in a former cloth-making village
A secluded seven-bedroom detached house with large private garden, £490,000
A three-bedroom cottage overlooking Sarratt village green with open fires and solid oak floors
A three-bedroom maisonette flat in a Grade I-listed, Georgian townhouse in a sought-after location
A one-bedroom apartment located within a private gated development, north of Turnham Green
Look forward to a brighter future at two-bedroom Sunny Cottages, ideal for Londoners looking to downsize
A three-bedroom red-brick cottage with outbuildings and pretty gardens, £200,000
This three-bedroom flat within a former textile factory spans the corner of the fourth floor and has a balcony