April isn't the cruellest month

Presents from the taxman

THE END of the tax year - 5 April - is imminent. It is the deadline for a range of allowances and opportunities that enable you to cut your tax bill for the past year and minimise future liabilities. That means you should consider taking action on a range of financial planning points - from Personal Equity Plans to pensions and company car mileage.

Arguably, it is even more important to take advantage of tax saving opportunities this year with a general election looming. While many of the allowances will be available again in the next tax year, they may not last forever. While the Conservatives have said they want to abolish capital gains tax and inheritance tax, Labour has said it will clamp down on some tax breaks.

The new financial year also means the start of the countdown to self- assessment, a new approach to paying tax that will initially affect the 9 million who fill out a tax return.

Here, and on pages 16 to 19, we provide a range of tips on how to keep the taxman at bay.

Deloitte & Touche, the accountancy firm, is offering a free guide to tax-saving opportunities, Year End Personal Tax Planner 1996. Call Nick Lazenby on 0171-936 3000 for a free copy.

THE taxman does not happily give much away, which is why tax-free personal equity plans have soared in popularity since their introduction seven years ago. Today there is pounds 22bn invested in 1,200 different plans offered by more than a hundred different investment managers. But before you pour your money into a PEP, what do you need to know?

What is a PEP?

A PEP is a tax-free wrapper to place around shares, corporate bonds, unit trusts and investment trusts.

What are the tax benefits?

Twofold. All the income (or "dividends") from the PEP investments are free from income tax. All the gains (for example, the growth in value of the shares) are free from capital gains tax.

Who can take out a PEP?

You have to be over 18 years old and a UK resident. A husband and a wife can both have their own PEPs.

How much can you invest in a PEP?

A maximum of pounds 9,000 a year per person. Up to pounds 6,000 can be put in a general PEP plus a further pounds 3,000 in a single-company PEP.

What is the minimum amount I can put in a PEP?

Most PEP providers state pounds 1,000 as the minimum lump-sum investment, although there are plans with a minimum as low as pounds 500. Alternatively, you can invest through a regular savings scheme. These are mostly set at pounds 50 per month, but some are as low as pounds 20 per month. You can also swap shares, such as privatisation issues, through low-cost "share-exchange" schemes.

Some plans offer investments of pounds 12,000. How?

This is possible by using up both your 1995-96 PEP allowance and your 1996-97 allowance. Some of this year's PEP offerings - from M&G, Schroders and Perpetual - are investment trusts that are designed to permit investments of pounds 12,000.

Can you carry forward last year's allowance?

No.

What do I have to tell the taxman?

You do not have to declare a PEP on your tax return unless you withdraw more than pounds 180 a year in interest earned on cash held in the PEP. This is very unlikely, though, as investors are not permitted to hold uninvested cash in their PEPs for any length of time.

What is a general PEP?

A PEP that invests in unit trusts, investment trusts, corporate bonds or shares, or any combination of these. To qualify for PEP status, a unit trust or investment trust must have at least 50 per cent of its investments in the UK or Europe.

What is a single-company PEP?

This invests only in the shares of a single company. These are usually cheaper than a general PEP but are more risky investments because the investor is relying on the fortunes of just one company.

How much will I be charged?

Managers of general PEPs investing in unit trusts usually levy an initial charge of up to 5 per cent and an annual charge of 1 to 1.5 per cent. Strong competition means initial charges on some index-linked PEPs have dropped dramatically. But look out for exit charges that may apply for the first three to five years. Also, any initial charge may be part of a bigger spread - or difference between buying and selling prices - which is an additional investment cost.

How do I choose a PEP?

Consult an independent financial adviser or, if you are confident you know what you are doing, buy one direct from an advert. What you choose should match your income and how much risk you are prepared to take. Someone in retirement is likely to want an income-producing PEP, while a younger investor may want something geared to longer-term growth.

How much income can I expect from a PEP?

Corporate-bond PEPs pay the highest income, but offer lower prospects for capital growth. Expect around 7 per cent from a corporate bond PEP, and up to 4 per cent from a stockmarket PEP.

Can I change my investment?

Most general PEP companies offer a range of funds so you can switch from, say, UK to Europe if you think that the UK stock- market is too high.

Do I have to stay with the same PEP plan manager?

You can only have one PEP manager in one tax year, but after that you can transfer your investment to another plan manager. Again, you should consult your IFA about changing your manager if investment returns are poor.

Is there a minimum holding period?

No, but most advisers recommend that you keep a PEP for five years to maximise returns and minimise the impact of charges.

What happens if I die?

PEPs cannot be inherited. When a planholder dies, the plan ceases to be tax-free and is liable for inheritance tax.

Will a future Labour government abolish PEPs?

The Labour Party has become less hostile in recent years to PEPs, and no one expects any changes to be applied retrospectively. Industry pundits forecast that a future Labour government may put a ceiling on the maximum tax-free allowance savers can have.

q The most comprehensive guide to PEPs is the 'Chase de Vere PEP Guide', at pounds 12.95 (0800 526092). The cost is refunded if you subsequently buy a PEP through Chase de Vere, an independent financial adviser.

Start your day with The Independent, sign up for daily news emails
PROMOTED VIDEO
News
Top Gun actor Val Kilmer lost his small claims court battle in Van Nuys with the landlord of his Malibu mansion to get back his deposit after wallpapering over the kitchen cabinets
people
News
Comedian Ted Robbins collapsed on stage during a performance of Phoenix Nights Live at Manchester Arena (Rex)
people
News
The actress Geraldine McEwan was perhaps best known for playing Agatha Christie's detective, Miss Marple (Rex)
peopleShe won a Bafta in 1991 for her role in Oranges Are Not The Only Fruit
News
newsPatrick Cockburn was able to update his agenda-setting 'The Rise of Islamic State' while under attack in Baghdad
News
Robert Fraser, aka Groovy Bob
peopleA new show honours Robert Fraser, one of the era's forgotten players
Life and Style
Torsten Sherwood's Noook is a simple construction toy for creating mini-architecture
tech
Sport
David Silva celebrates with Sergio Aguero after equalising against Chelsea
footballChelsea 1 Manchester City 1
ebooks
ebooksA special investigation by Andy McSmith
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Software Development Manager

£40000 - £50000 per annum: Recruitment Genius: This is an exciting opportunity...

Ashdown Group: Product Manager - (Product Marketing, Financial Services)

£30000 - £35000 per annum + Benefits: Ashdown Group: Marketing Manager - Marke...

Recruitment Genius: Compliance Assistant

£13000 per annum: Recruitment Genius: This Pension Specialist was established ...

Ashdown Group: Market Research Executive

£23000 - £26000 per annum + Benefits: Ashdown Group: Market Research Executive...

Day In a Page

As in 1942, Germany must show restraint over Greece

As in 1942, Germany must show restraint over Greece

Mussolini tried to warn his ally of the danger of bringing the country to its knees. So should we, says Patrick Cockburn
Britain's widening poverty gap should be causing outrage at the start of the election campaign

The short stroll that should be our walk of shame

Courting the global elite has failed to benefit Britain, as the vast disparity in wealth on display in the capital shows
Homeless Veterans appeal: The rise of the working poor: when having a job cannot prevent poverty

Homeless Veterans appeal

The rise of the working poor: when having a job cannot prevent poverty
Prince Charles the saviour of the nation? A new book highlights concerns about how political he will be when he eventually becomes king

Prince Charles the saviour of the nation?

A new book highlights concerns about how political he will be when he eventually becomes king
How books can defeat Isis: Patrick Cockburn was able to update his agenda-setting 'The Rise of Islamic State' while under attack in Baghdad

How books can defeat Isis

Patrick Cockburn was able to update his agenda-setting 'The Rise of Islamic State' while under attack in Baghdad
Judith Hackitt: The myths of elf 'n' safety

Judith Hackitt: The myths of elf 'n' safety

She may be in charge of minimising our risks of injury, but the chair of the Health and Safety Executive still wants children to be able to hurt themselves
The open loathing between Barack Obama and Benjamin Netanyahu just got worse

The open loathing between Obama and Netanyahu just got worse

The Israeli PM's relationship with the Obama has always been chilly, but going over the President's head on Iran will do him no favours, says Rupert Cornwell
French chefs get 'le huff' as nation slips down global cuisine rankings

French chefs get 'le huff' as nation slips down global cuisine rankings

Fury at British best restaurants survey sees French magazine produce a rival list
Star choreographer Matthew Bourne gives young carers a chance to perform at Sadler's Wells

Young carers to make dance debut

What happened when superstar choreographer Matthew Bourne encouraged 27 teenage carers to think about themselves for once?
Design Council's 70th anniversary: Four of the most intriguing prototypes from Ones to Watch

Design Council's 70th anniversary

Four of the most intriguing prototypes from Ones to Watch
Dame Harriet Walter: The actress on learning what it is to age, plastic surgery, and her unease at being honoured by the establishment

Dame Harriet Walter interview

The actress on learning what it is to age, plastic surgery, and her unease at being honoured by the establishment
Art should not be a slave to the ideas driving it

Art should not be a slave to the ideas driving it

Critics of Tom Stoppard's new play seem to agree that cerebral can never trump character, says DJ Taylor
Bill Granger recipes: Our chef's winter salads will make you feel energised through February

Bill Granger's winter salads

Salads aren't just a bit on the side, says our chef - their crunch, colour and natural goodness are perfect for a midwinter pick-me-up
England vs Wales: Cool head George Ford ready to put out dragon fire

George Ford: Cool head ready to put out dragon fire

No 10’s calmness under pressure will be key for England in Cardiff
Michael Calvin: Time for Old Firm to put aside bigotry and forge new links

Michael Calvin's Last Word

Time for Old Firm to put aside bigotry and forge new links