Why not put your trust in a PEP?

Personal equity plans (PEPs) have proved to be one of the best means of long-term saving for any taxpayer. Individuals can put up to pounds 6,000 a year into a general PEP and pounds 3,000 a year into a single-company PEP, with all dividends and capital growth tax-free.

Investment trusts are just one type of investment that can be put in a PEP. Like unit trusts, they offer investors a stake in the performance of a broad, professionally-managed share portfolio. However, for investment trusts that invest over half their funds in stockmarkets outside the European Union, only pounds 1,500 can be put into them via a PEP.

Investors receiving windfall shares from building societies and insurance companies converting to public company status can use them to start an investment trust PEP or add them to an existing PEP. If windfall shares are put into a PEP within 42 days, they can be added to the annual pounds 6,000 (or pounds 3,000) investment limit. Some investment trust managers make a small charge for accepting them in a PEP, but most do not.

The table shows most of the investment trust managers that will accept windfall shares, whether they can be held separately or exchanged for investment trust shares, and the charges, excluding VAT. As well as catering for lump sum and windfall investors, most investment trust managers will accept monthly savings into their PEPs. These start at pounds 20 a month.

While charges are important, performance matters more. It is better to be invested in a fund that shows outstanding growth than to put money into one with low charges and no growth. A good independent financial adviser should be able to advise on which investment trust would best suit your aims.

Gordon Brown, Chancellor of the Exchequer, gave notice in his June Budget that Peps are to be replaced by a new tax-favoured investment called the Individual Savings Account (ISA) from 1999. But until then Peps remain probably one of the best ways of investing and any existing PEPs are likely to be allowed into the new savings plan.


Manager Must be exchanged Charge for acceptance Annual PEP charge

or can be held

Alliance Trust Can hold pounds 10.50 nil

Baillie Gifford Exchange Stamp duty pounds 30

Edinburgh Fund Managers Exchange pounds 25 0.5% up to pounds 40

Fidelity Can hold nil nil

Flemings Can hold nil pounds 25

Foreign & Colonial Exchange nil pounds 61.44

Gartmore Can hold nil 0.5%

Guinness Flight PEP Can hold nil 1%

Henderson Investors Can hold nil pounds 30

Invesco Exchange pounds 20 1%

John Govett Can hold nil nil

Kleinwort Benson Exchange Dealing costs 1%

Law Debenture Corp Can hold pounds 25 1% up to pounds 20

Martin Currie Exchange nil pounds 30

Mercury Can hold nil 0.5%

Murray Johnstone Can hold Dealing costs 1.25% up to pounds 40

Perpetual Can hold nil 0.5%

Schroders Can hold nil 0.5%

Stewart Ivory Exchange nil pounds 25

Source: Association of Investment Trust Companies

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