Letter: Ignore downers, PEPs do you good

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The Independent Online
AT THE start of Nick Gilbert's article on personal equity plans (7 November) he suggested PEPs should be labelled 'unsuitable for basic-rate taxpayers', on the basis that charges exceeded the tax reclaimed. I suggest that this is not the right way to approach PEP investments. The key question is whether or not the tax benefits derived from holding an investment in PEP form exceed any additional costs involved.

As far as unit trust PEPs are concerned, most companies, like ourselves, make no charge for PEPing a unit trust. Consequently, investors who consider it appropriate to invest in a unit trust, should hold it in PEP form because the additional tax benefits are achieved at no extra cost. This is illustrated by someone who invested in our Equity High Income Trust in 1989 and has seen total growth of 62.7 per cent, compared with 53.2 per cent in the same unit trust outside a PEP.

Hence, the effect of reinvesting the tax reclaimed under the PEP has boosted growth by 9.5 per cent over four and a half years.

Although tax credits on dividends have been reduced, increasing income by reclaiming tax at 20 per cent will still have a worthwhile effect on the return.

The message is that unit trust PEPs generate substantial extra benefits at no extra cost to the investor.

Andy Harrison

Chief Executive, Clerical Medical Unit Trust Managers Ltd

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