The benefits of turning a windfall into a PEP; READERS' LIVES
Sunday 02 March 1997
Placing your free shares in a PEP is a good move in terms of tax efficiency. You'll pay no income tax on the dividend income and no capital gains tax on the profit you make when you come to sell the shares.
But PEPping the shares makes sense only if the tax you save is more than the costs of holding the shares in a PEP. Unfortunately, self-select PEPs, which allow investors to hold shares and other qualifying investments of their choice, tend to have the highest PEP charges.
The cheapest PEPs tend to be those sponsored by individual companies. They are designed to hold that company's shares only, not a portfolio of several shares. You can open only two PEPs each year - a "general" PEP and a "single company" PEP, both of which varieties can be low-cost, company-sponsored PEPs. But opting for this low-cost variety may well limit you to PEPping just two shares.
Your best course of action is to wait until you get your first set of free shares and look for the best deals available. There will be PEPs on the market designed specifically for the millions of people receiving free shares as a result of building society conversions.
You cannot transfer existing investments into a PEP without first selling them and buying them back through a PEP. But in the case of newly issued shares, you have 42 days from issue during which you can transfer them directly into a PEP.
Note, too, that since you will be acquiring the shares free, they will not count towards the normal PEP annual investment limits of pounds 6,000 for a general PEP and pounds 3,000 for a single-company PEP. So potentially you could take out pounds 9,000 of other PEPs from April and add the free shares on top.
A number of big investment managers have specifically said they will accept free shares into their PEPs. In some cases you will be able to continue holding the shares. In others you will have to exchange the shares for unit trust investments.
I have read about new-style assured short-hold tenancies. I have a house that is being let. The prospect of being able to offset mortgage interest against my tax bill is very attractive. Will assured short-hold tenancies meant that building societies cease to charge commercial rates for landlords?
First, assured short-hold tenancies are not new. They were introduced in the 1988 Housing Act. Last year, the 1996 Housing Act amended the original legislation in a way that lessens the risk to landlords of accidentally creating assured tenancies, which give tenants more protection than assured short-hold tenancies. The changes take effect from 28 February this year.
But the rules on setting mortgage interest against your rental income are not affected by changes to the rules on assured short-hold tenancies. Basically, you can deduct mortgage interest, along with other allowable expenses you incur as a result of letting property, from the rent you receive.
Mortgage lenders vary in their policies on the rates they charge borrowers who let out property, but the 1996 Housing Act is unlikely to have any effect on what you are charged.
We have some money maturing from National Savings taken out for our two daughters, now 20 and 16. We are thinking of reinvesting the money for the younger daughter in a five-year National Savings Certificate. But the elder daughter could need her money within a year or two if, for example, she wanted to buy a car. What is best for her?
Fixed-rate National Savings Certificates are currently paying a guaranteed 5.35 per cent (tax-free) a year, provided you don't cash them in within five years. But you may want to consider Capital Bonds for your younger daughter. These pay 6.65 per cent fixed for five years. The interest is taxable, though this won't affect your daughter assuming she is a non- taxpayer.
For your elder daughter you could consider National Savings First Option bonds. The rate is fixed for one year at a time. It is currently 6 per cent (6.25 per cent on investments of pounds 20,000 and over). Interest is taxable unless your daughter is a non-taxpayer. You should compare these investments with the fixed rates on offer from banks and building societies in our best savings rates table on page 16.
However, speculation that interest rates will go up after the election means there is a danger that you could lose out by locking into a fixed rate now.
Some instant access postal accounts also pay quite healthy variable rates of interest. One of these could also be suitable for your elder daughter.
q Write to Steve Lodge, personal finance editor, Independent on Sunday, 1 Canada Square, Canary Wharf, London E14 5DL, and include a telephone number.
Do not enclose SAEs or any documents that you wish to be returned. We cannot give personal replies or guarantee to answer every letter we receive. We accept no legal responsibility for advice.
06 May 2015 09:39 AM
One reader’s monthly direct debit charge has been increased by 62 per cent
05 May 2015 02:09 PM
Many Londoners who live in social housing estates are not allowed to switch because their landlord has ‘locked’ them in to buying from one supplier
24 April 2015 07:30 PM
01 May 2015 12:00 AM
More than £60m was paid out to more than 2 million prizewinners this month
28 April 2015 05:20 PM
Why can’t we just have open and honest charges, without all the cross-subsiding?
28 April 2015 03:50 PM
With the pound at a high against the euro, it pays to buy now before uncertainty post-election
17 April 2015 06:00 PM
23 April 2015 12:00 AM
Experts disagree about the 7% increase over the past year
22 April 2015 07:29 AM
Too many mortgages are being sold with misleading gimmicks
21 April 2015 09:54 AM
The firm’s revenues slumped by a third to £217 million in 2014
21 April 2015 12:00 AM
The average quote for a buildings and contents policy has fallen by 3.6 per cent
10 April 2015 07:00 PM
15 April 2015 12:56 PM
Joining Barclays Blue Rewards costs £3 a month but then lets customers in for handouts of up to £15 a month
15 April 2015 07:27 AM
A charity is urging anyone struggling financially to see if they could get help from the state
13 April 2015 11:39 AM
Video: With an election looming, a hung parliament could hit sterling
Crowd-to-let: How crowdfunding sites can give investors a slice of the property market for £500
General Election 2015: How you vote next week could affect your finances
Social tenants locked into energy tariff for 40 years
Winter heating underpayment brings summer pain
Five Questions On: GB Energy's new tariff
- 1 Katie Hopkins gives rare glimpse of sensitive side with heartfelt open letter to her children penned in case she dies from epilepsy
- 2 Rihanna's Met Gala dress took one Chinese woman 2 years to make, was reduced to omelette meme in 2 seconds
- 3 Top Gear: Jodie Kidd, Philip Glenister and Guy Martin 'in advanced talks' to replace Jeremy Clarkson and co
- 4 Women think Irish men are the sexiest, survey finds
- 5 Florida couple forced to register as sex offenders for having sex on public beach
In defence of liberal democracy
General Election 2015: Post-election 'shambles' looms as 70 per cent of voters say SNP 'should not be able to veto UK government policies'
The Rothschild Libel: Why has it taken 200 years for an anti-Semitic slur that emerged from the Battle of Waterloo to be dismissed?
General Election 2015: UK will be 'run for the wealthy and powerful' if Tories retain power, Labour warns
General election live: SNP suspends two members for disrupting Labour rally
Schools forced to act as 'miniature welfare states' with teachers buying underwear and even haircuts for poor pupils
iJobs Money & Business
£60000 - £70000 per annum + benefits : Ashdown Group: A highly successful, glo...
£25000 - £30000 per annum + benefits: Ashdown Group: A global leader operating...
£27 - 35k + Bonus + Benefits: Guru Careers: A Management Accountant is needed ...
£40-50k + Benefits.: Guru Careers: A Project Manager / Business Analyst is nee...
Day In a Page
Located in the University area, this semi-detached five-bedroom home is arranged over three floors - there's even a rear garden and off-road parking too.
Only a few minutes' drive from the charming town of Marlow, this two-bedroom home sits on the private riverside estate of Harleyford.
This detached four-bedroom home in Middleyard is arranged over two floors, with features that include a wood-burning stove and bespoke oak staircase.
In a row of eight detached Georgian residences, this five-bedroom home offers views of The Sound, Mount Edgcumbe and Cornwall from its impressive veranda and full-length balcony.
If you love cooking for friends this two-bedroom flat - complete with views of the iconic Battersea Power Station and an open-plan kitchen/dining area - will go down a treat.
Located above Grasmere village, this five-bedroom home is arranged over three floors and offers countryside views across Grasmere Lake towards Silver Howe.
Surrounded by the Western fells, this five-bedroom Georgian home retains many original features including panel-plastered ceilings, sash windows and fireplaces.
This six-bedroom home is set amongst three acres of grounds. Currently a large family home, Clift Hill has potential to make a B&B, subject to change of use permissions.
A former period coach house, Glebe Farm Stable is now a three-bedroom cottage with a double car barn, office, kennels and an outbuilding that's currently used as a gym.
Set sail for this four-bedroom farmhouse in Cowes. With five acres of land and an indoor pool, this home oozes character. There is even potential to let a one-bedroom annexe.
Surrounded by woodland, this five-bedroom manor house has plenty of outdoor storage space in the form of three converted loose boxes, two smaller outhouses and a woodstore.
This four-bedroom detached home comes with a double carport, useful workshop, garden and two walkways that offer views of the adjacent countryside.
With space for an equestrian business, a greenhouse for growing your own veg, a wine store and a gym; this five-bedroom home has all the ingredients for a country retreat.
This four-bedroom home has exposed brick chimneys and a vaulted ceiling in a breakfast room that's ideal for summer entertaining - the doors open to the patio and garden.
The decked roof terrace of this two-bedroom flat is perfect for summer drinks while large windows and ample storage space make for a light and spacious interior.
Surrounded by approximately 15 acres of grounds, this six-bedroom grade II-listed home has been extensively refurbished yet retains many period features.
This four-bedroom home comes with a two-bedroom cottage and commercial office, with planning to extend, in a stunning courtyard setting.
In a pretty Norfolk village, this four-bedroom family home is surrounded by landscaped gardens, with even a self-contained annex for guests.
A few miles from the seaside at Perranporth, this four-bedroom farmhouse sits amongst nine acres of idyllic grounds - including a lake and two barns used as holiday lets.
This five-bedroom home is arranged over three floors of a converted Victorian hospital, offering spectacular views of the Pentland Hills - only three miles from the city centre.
This four-bedroom detached home comes with grounds that span to approximately 2.5 acres, as well as two large patio areas and a double garage.
This four-bedroom cottage is a Grade II-listed town house, well-located for the thriving market town of Nailsworth.
A four-bedroom apartment on the ground floor of a stunning period property in North Yorkshire, with two kitchens and a large south-west facing garden.
This high-spec two-bedroom home is part of a smart collection of new flats at Beaufort Park and has a large decked balcony that's perfect for summer drinks.
Capitalise on the fabulous views of Trevone Bay by taking two homes and creating one spacious boutique B&B. Just a cliff-top walk from Padstow.
Overlooking a golf course, this six-bedroom Edwardian detached home spans four storeys and retains many period features including the original, operational servants' bells...
On the edge of the city, this six-bedroom home comes with an outdoor swimming pool and a large garage block that has annexe potential.
In a Grade II-listed manor just outside of Bath, this three-bedroom home is arranged on two floors with a skylight in a vaulted roof line.
Open the living room's bi-fold wooden doors to reveal a retro-style kitchen, and a conservatory leading to a paved garden at this three-bedroom home.
A Grade II-listed, four-bedroom home, in a charming Somerset village, with a two-storey studio that could be converted into a holiday cottage
A modern four-bedroom Victorian home, within walking distance to the high street
A luxury apartment in the Gothic mansion of Wyfold Court in Kingwood, offers six bedrooms spread over three floors and a turret
This school conversion, near Stockwell Tube, oozes New York loft style. The one-bedroom flat features double height ceilings and exposed brick work
This six-bedroom Georgian home is on three floors with open fireplaces, a two-oven Aga, an annexe, and cottage gardens with outbuildings and a car barn
High Crest House covers an impressive 9384sq ft, with almost three acres of grounds including a tennis court and summer house enclosed by electric gates
A six-bedroom farmhouse with separate accommodation in converted stables. Situated in the village of Church Aston, within walking distance to the market town
A two-bedroom flat with under-heated walnut floors and bespoke built-in storage. The Tube and Clapham Common are a short stroll away
A refurbished seven-bedroom townhouse with staff quarters, cinema room, superb gym, steam room and plunge pool
A minimnalist four-bedroom home designed to the highest spec, featuring glass walls and a kitchen space lit by a glass roof
Hibernate during winter and make your living during the summer at this busy guesthouse with panoramic sea views, in the village of Lynton
A four-bedroom penthouse next to the Tate with direct views of St Paul's from two floors of luxurious living space
A four-bedroom detached home surrounded by spacious gardens and woodland, close to New Pudsey
An 18th-century, three-bedroom home near Langstone Harbour built from ships beams with vaulted ceilings and wood burning stoves
A five-bedroom semi-detached home with a mix of period and modern features in a popular and convenient location
This five-bedroom red-brick beauty overlooks the village green and sits in just under two acres of land
A three-bedroom villa with self-contained flat, minutes from Lake Windermere
A five-bedroom Victorian home with four receptions, superb gardens and paddock in Pembury
An eight-bedroom house on the south side of the The Green with cinema, wine cellars and summer house
This 17th century beauty is full of rustic cosiness, while the detached home office means you can also run a business