PEPs, sweet and sour
TAX PLANNING: Every investment represents a risk, and someone considering a personal equity plan must decide on the degree of exposure they want. Simon Read explains how those on offer range from the single- company, whose value can vary rapidly, to the st corporate bond
A PEP is simply the name of a way to shelter investments from the demands of income tax or capital gains tax. This is important to remember because there are many kinds of investment opportunities, and many kinds of PEPs.
A wise investor will choose the investment vehicle first, and then decide how to protect it from the Inland Revenue. The rules governing the types of investment allowed in a PEP are fairly broad, although specific when it comes to where you invest your cash.
It is permissible to invest in the UK, but not always all right to do so overseas. The investments you can hold in a PEP include individual company shares, pooled investments, such as unit trusts and investment trusts, and also fixed investments such as corporate bonds, preference shares and convertibles.
What they all have in common is that they represent some kind of risk, so deciding which kind of investment is right for you means assessing your attitude to risk.
The riskiest PEPable investment is to buy shares in an individual company. The price of shares can rise and fall minute by minute. It can be a roller-coaster ride and not one for the nervous, although if you already hold shares it may be worth putting them in a PEP to save paying tax on dividend income.
But the predominant investment in a PEP is a unit trust. This reduces the risk by spreading your cash among a wide number of shares and often other investments. Of the estimated pounds 35bn currently invested through PEPs, around pounds 25bn is in unit trusts. According to the Association of Unit Trusts and Investment Funds, only around half of the 1,500 unit trusts in existence are PEPable. This is because the PEP rules require the trusts to be at last 50 per cent invested in shares from the UK or the European Union.
Unit trusts come in a variety of formats, offering different levels of risk. Recent history shows that unit trusts that invest in smaller companies have offered best performance - Gartmore, Schroders and Hill Samuel are popular good performers - but these are high-risk funds, and anyone investing at the wrong time could easily lose out.
Increasingly popular these days are index-tracker PEPs. These are offered by the likes of Virgin Direct and Marks & Spencer on the basis of price and simplicity. With index-tracker funds there is no active investment management, as the aim is simply to replicate the performance of the FT- SE 100. But they can therefore limit your potential return. For the best performing funds you will have to pick a specialist unit trust. However, there is no way of knowing which funds will perform best and today's winners could be tomorrow's also-rans.
Novice investors used to the safer world of building society accounts could be better off investing in corporate-bond PEPs.
Corporate bonds effectively are fixed-interest loans to large corporations. As with any other type of loan the companies pay interest on the bonds and repay the capital at a pre-set date. Investors are therefore lending a company money for a fixed time and receiving interest on the loan until it is repaid.
Whatever your choice of PEP, expert advice will help guide you through this investment mine-field `The Independent' has produced a free 32-page guide to PEPs, written by Steve Lodge, Personal Finance Editor of our Sunday sister paper. The guide, sponsored by General Accident Life, is available by calling 0500 125888. Or fill in the coupon on page 19.
Independent Partners; request a free guide on NISAs from Hargreaves Lansdown
Board creates magnetic field to achieve lift
Like Madonna, Sister Cristina Scuccia's video is also set in Venice
Singer says the track was 'force-fed down people's throats'
techThe original free dating app will remain the same, developers say
Endangered species spotted in a creek in the Qinling mountains
- 1 Jack the Ripper: Scientist who claims to have identified notorious killer has 'made serious DNA error'
- 2 Banksy arrest hoax: Internet duped by fake online report claiming artist's identity has been revealed
- 3 Drink alcohol and eat meat to improve male fertility - but cut down on coffee, studies suggest
- 4 Former East 17 frontman Brian Harvey turns up at Downing Street and 'demands to speak to Prime Minister'
- 5 The inventor of the Facebook 'like' button says he never made a 'dislike' button because he feared the 'unfortunate consequences'
Cameron is warned 'no possibility' of UK reducing immigration and that bid to bring in quota on migrant workers would be illegal
Residents should throw a street party and mix with immigrant neighbours, councils told
Russell Brand threatened with arrest after filming outside Fox News headquarters
London bus driver 'kicks gay couple off for kissing'
Lord Freud: Tory welfare minister apologises after saying disabled people are 'not worth’ the minimum wage
Lord Freud hangs on as MPs of all parties 'call for his head' over disability comments
iJobs Money & Business
£23000 - £26000 Per Annum: Clearwater People Solutions Ltd: Our client is curr...
£25 - 30k: Guru Careers: A Corporate Actions Administrator / Operations Admini...
£18 - 23k + Benefits: Guru Careers: We are seeking a Customer Service Executiv...
£60 - 65k + Benefits: Guru Careers: We are seeking a ASP.NET Web Developer / ....
Day In a Page
This 17th century beauty is full of rustic cosiness, while the detached home office means you can also run a business
This five-bedroom red-brick beauty overlooks the village green and sits in just under two acres of land
Four exclusive apartments in a Grade II-listed former medical school with 2,275 sq ft of living space and 18ft ceilings
A five-bedroom terraced house on the popular Peterborough Estate, ideally located for both Eel Brook Common and South Park
A state-of-the-art farm-building conversion on the former Cliveden Estate, with 11,420sq ft of internal space, cinema and wine cellar
A three-bedroom, 15th-century cottage with original features in the picturesque village of Sissinghurst
A six-bedroom terraced house with large south-facing roof terrace, cinema room and wine cellar
A new seven-bedroom home built in Queen Anne-style with swimming pool and parkland views in Mortimer
A listed, four-bedroom farmhouse in the rural hamlet of Rushall with detached barn, four acres of gardens and paddocks
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