Anyone who fails to invest the maximum allowed by the deadline will lose forever the chance to tuck away up to £9,000 worth of investments and shelter them from both income and capital gains tax. Forever, that is, until 6 April, when a new tax year begins, and the process starts all over again.
Those with substantial investments will gain from shifting the maximum allowed each tax year into PEPs. But the sooner they shelter their investments from tax, the sooner they will benefit. People with substantial assets should certainly use up their allowance by 5 April. But they should also invest more money in a PEP as soon as possible after 6 April, to make use of next year's allowance.
Thus rushing into PEPs at the end of the tax year is essentially illogical. But human behaviour is not always governed by logic.
For more modest investors, there is an urgency to beat the deadline only if next year's allowance of up to £9,000 is likely to prove insufficient.
Under the PEP rules, up to £6,000 can be placed in a general PEP investing in UK and European Union shares, or in unit and investment trusts that have at least 50 per cent of their assets in such shares. Up to £1,500 of the £6,000 allowance can go into most other unit trusts that fail the 50 per cent test.
A further £3,000 can be invested in a separate single company PEP, which can hold the shares of just one UK or EU company (excluding investment trusts).
Some investors may prefer to hold fire and go for the new corporate bond PEPs that are due to come on stream. New rules mean that eligible PEP investments will be extended to include corporate bonds, and to unit and investment trusts specialising in this area.
Corporate bonds are fixed-interest investments issued by companies and other organisations. They should offer a high tax-free income but are unlikely to produce the sort of capital growth that share-based investments can provide.
The new rules were supposed to take effect from 6 April, but the Inland Revenue has been slow to define exactly which corporate bonds will be allowed.
The frenzy over the deadline for tax-free PEPs can overshadow another useful tax-free home for money - the Tessa account.
Over five years, up to £9,000 can be deposited in a Tessa account from a bank or building society.
The investment limit for the first year is £3,000, and for subsequent years £1,800, subject to the overall £9,000 limit.
These annual limits are not governed by the tax year, but by the date the account is opened and subseqent anniversaries. People should check their Tessas to see if there is scope for topping them up.Reuse content