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READERS' LIVES: The limits of personal control over PEPs ... how to minimise liability for capital gains tax. Your queries answered
I have read an Inland Revenue leaflet that says a PEP must be managed by an approved plan manager. Does this preclude the possibility of applying to be approved to administer my own investments?

JC, West Yorkshire.

You can apply to the Inland Revenue for approval to be a PEP plan manager only if you are authorised to carry out investment business under the Financial Services Act. That basically makes it impossible for people to be their own PEP managers unless they work in the financial services industry. No doubt firms in the industry are keen to keep things that way.

But the point you raise is an important one. Treasury civil servants have managed to persuade themselves and successive chancellors that individuals cannot be trusted to understand the PEP rules. They are worried people will make more tax-free income and gains than they are entitled to if they do not have a professional to supervise.

Yet it should not be beyond the wit of Treasury civil servants to simplify the PEP rules - an issue to take up with your local MP and the Chancellor.

Furthermore, while you may need a PEP manager you can still have considerable control over your investments both through the wide range of investment fund options offered by many PEP companies or by going for a "self-select" PEP, which gives you the widest possible choice of investments with the "manager" simply administering the reclamation of tax on your dividends.

To take advantage of the age-related tax allowances available to older people of modest income, I have kept my income down by transferring most of my shares and unit trusts to my wife. But I now realise that there is a substantial potential liability to capital gains tax on eventual sale of these investments. Is there a simple way of making use of the annual capital gains tax exemption?

RP, West Midlands.

You have transferred investments to your wife in order to save income tax. You now want to have some of those investments back in your own name to save capital gains tax.

You and your wife can each make capital gains within the annual exempt amount, pounds 6,500 each in the current tax year (pounds 13,000 between you). To make use of this annual exemption, investors have to crystallise their paper gains. This does not just mean selling them. You can instead bed- and-breakfast them (in effect sell the investments one day and then buy them back the next) to realise the gain. In this case the gain you make when you eventually sell those investments for good is based on the sale proceeds less the price you paid for those investments in a bed-and-breakfast buy back. You can ignore the original price you paid for the investments.

If you want to bed-and-breakfast share and unit trusts in your own name, your wife will have to go through the rigmarole of transferring back to you investments that you have transferred to her. Any dividends paid out during your period of ownership will be counted as your income, and may reduce the age-related allowances you can claim if you are near the income threshold at which these allowances are reduced.

If you do not expect to have to cash these investments for a good few years yet, do consider simply keeping them all in your wife's name. This does mean that only your wife will be able to make use of the capital gains exemption each tax year.

q Write to Steve Lodge, Personal Finance Editor, Independent on Sunday, 1 Canada Square, Canary Wharf, London E14 5DL, and include a phone number. Alternatively, fax 0171-293 2096 or 2098 or e-mail: indybusiness@independent.co.UK. 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 accept no legal responsibility for any advice given.