Readers' Lives: Taxed by talk of a takeover
Single-company PEPs ... company pensions. Your queries answered
Sunday 29 March 1998
It remains to be seen whether a takeover bid for Norwich Union materialises. But your question is relevant to any company that is taken over, and especially to the many people who have put their building society windfall shares into single-company PEPs.
If you were to receive the shares of the bidding company in exchange for your Norwich Union shares, you would simply have a different company's shares to hold in a single-company PEP. If you were to receive a part- share, part-cash offer, you would have to use the cash to buy more of the bidding company's shares if you wanted to keep the same value of investment in a single-company PEP. If you were to receive a 100 per cent cash offer then you could reinvest that cash in a different company and maintain your single-company PEP investment. There will be no tax liability.
But there is a potential drawback. Do the house rules of your single- company PEP (as opposed to the perhaps more flexible rules of the Inland Revenue) restrict the companies you can hold in the PEP? For example, Barclays Stockbrokers runs a single-company PEP exclusively for Norwich Union.
If you have an inflexible single-company PEP you would have the choice of transferring the money to a different PEP manager. There could be extra costs should a transfer be necessary. But the important point is that you will be able to keep the same value assets in a tax shelter (and without using up the current tax year's PEP allowance) provided you effect the transfer properly. You would need to get advice at the time on how to transfer rather than just close a PEP account.
That's the scenario as regards PEPs today. What happens after PEPs have been replaced next year by ISAs (the new tax-free individual savings accounts) still remains to be seen. Company-specific single-company PEPs can have very low running costs, and this may not be possible with the new ISAs.
I contribute to my employer's group pension scheme and my employer puts in an additional 4 per cent of my annual salary. I get tax relief at 40 per cent on the salary I forgo. Do I get any tax relief on my employer's contributions or are they deemed to be a net contribution?
You can ignore your employer's contribution as far as your own tax relief goes, and it has no relevance to what you put on your tax return. Think about it. An employer's contribution to a pension plan is part of your overall remuneration package. But, while your salary is paid direct to you and has tax and National Insurance deducted, no deductions are made from an employer's contributions to a pension plan. So, in effect, you automatically get tax relief.
Employers are allowed to pay into personal pension plans and into group personal pensions they run. These are subject to different rules from company pension schemes. With personal pensions you have to add such contributions to your own gross premiums when working out how much you can pay into the plan. There are contributions limits, starting at 17.5 per cent of your annual earnings to the age of 35 and rising in stages to 40 per cent at the age of 61.
q Write to the personal finance editor, 'Independent on Sunday', 1 Canada Square, Canary Wharf, London E14 5DL, and include a phone number, or fax 0171-293 2096. Do not enclose SAEs or any documents you wish returned. We cannot give personal replies or guarantee to answer letters. We accept no legal responsibility for advice given.
- 1 Cecil the lion: Dentist Walter Palmer blames local guides in Zimbabwe for the scandal
- 2 Kate Winslet thanked 'particularly horrible' girl who bullied her at school after Titanic success
- 3 Norwich paedophile ring: Woman at centre of gang who made children 'sexual play things' guilty of 23 offences
- 4 Black and ethnic minority people twice as likely to be hit by Tory cuts than white people, report finds
- 5 Walter Palmer: Cecil the lion killer revealed to be American dentist
Kate Winslet thanked 'particularly horrible' girl who bullied her at school after Titanic success
Norwich paedophile ring: Woman at centre of gang who made children 'sexual play things' guilty of 23 offences
Model's video shoot on the beach interrupted by sudden landing of a group of illegal migrants
Black and ethnic minority people twice as likely to be hit by Tory cuts than white people, report finds
Walter Palmer: Cecil the lion killer revealed to be American dentist
Labour leadership contender Jeremy Corbyn says 'we can learn a great deal from Karl Marx'
The last thing Labour needs is a leader like Jeremy Corbyn who people want to vote for
Yvette Cooper: Our choice is years of Tory rule under Jeremy Corbyn – or a return to a Labour government
I am the Jeremy Corbyn supporter that many will tell you doesn't exist
Public anger after French sunbather beaten up by gang for wearing a bikini in Reims park
Labour leadership: New poll shows party is now even 'less electable' than under Ed Miliband
iJobs Money & Business
£22500 - £24500 per annum: Recruitment Genius: Inbound and outbound calls with...
£18000 - £40000 per annum: Recruitment Genius: This fast growing Insurance Bro...
£40 - 45k (DOE) + Benefits: Guru Careers: A Research Associate / Research Anal...
£20000 Per Annum: The Green Recruitment Company: Summary: The Green Recruitm...