Bonus in the one-share basket

single-company PEPs

INVESTORS can boost their PEP limit to £9,000 by using the added tax-break available for investing in a single company.

Up to £3,000 can be invested in a single-company PEP, which is sheltered from tax on income or capital gains, in addition to the £6,000 general PEP allowance.

The Government introduced the single-company option nearly three years ago.There are three kinds to choose from.

The first type is the managed single-company PEP where the investment company takes responsibility for picking the stock. The second is the self-select single-company PEP where the investors choose the stock themselves. The third option is the corporate single-company PEP. These are set up by companies to encourage ownership of their shares. They are usually provided for the benefit of employees or to entice outside investors to buy shares in the company.

The maximum investment allowed is £6,000.

Chase de Vere, the independent financial adviser, says that the corporate PEP is not regarded as being particularly flexible but generally seen as more suitable for specialist investors.

Chase de Vere says it is normally only worth considering a single-company PEP if your general PEP allowance has already been fully utilised.

You can buy and sell shares in the PEP as long as you have no more than one share at a time. The downside of the single-company PEP is that you are putting all your eggs in one basket. But the risk can be limited by building up a range of separate stocks, one each year, in a number of blue-chip companies. The single-company PEP, in effect, is like a share - only it is tax free.

More than 100 companies set up single-company PEPs and the latest Inland Revenue figures show that more than £1bn has been invested in 440,000 plans since their introduction in 1992.

Bradford & Bingley is the biggest manager of single-company PEPs, running plans on behalf of such companies as ICI, BP, Tesco and Allied Lyons.

l Because single company PEPs are invested in just one stock, they are usually cheaper than other PEPs as there are fewer dealing charges and only one set of dividends need be processed. Many companies do not make any initial charge or levy.

l Investors should be careful because charges can vary widely.

l Investors should also check how flexible the PEP is.

Investors have always been able to sink the entire £9,000 tax-free into one company. Some companies now allow you to invest your £9,000 through one scheme, and not just in its shares. British Airways has a PEP that allows people to invest in any company as long as they hold a minimum 200 BA shares in the portfolio. So investors can put up to £3,000 into BA shares and £6,000 in any other shares, allowing them to qualify for the full £9,000 tax-free investment.

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