Rebuff charges by going solo

PEPS AND TESSAS
Click to follow
The Independent Online
SINGLE-COMPANY PEPs offer the most tax-efficient way to invest in the shares of your favourite company.

The single-company PEP allows tax-free investment of up to pounds 3,000 in the shares of just one company. An investor can take out a single-company PEP in addition to the pounds 6,000 allowance for a conventional PEP in any one tax year, boosting the tax-free investment limit to pounds 9,000.

As this type of PEP does not incur the costs of a fund manager buying and selling a wide range of shares, the charges are usually lower than those of a managed portfolio PEP.

However, investors should not let low charges and tax exemptions attract them into buying shares they would not otherwise contemplate buying. Martin Mullany, a director with London-based independent financial adviser Brooks Macdonald Gayer, says: "A single-company PEP will only perform as well as the shares it holds. If the share plummets in value or pays out little in the way of dividends, the PEP tax shelter is useless."

Investors who already own shares or who obtain them through an employee share scheme should consider using their single-company PEP allowances to protect their holdings from capital gains and income tax.

Normally investors who want to transfer shares that they already own into a PEP must sell them and employ the services of a PEP manager to repurchase them through a PEP. This process may result in a capital gains tax bill if the shares have increased in value while the investor has owned them. But shares acquired through an employee share scheme can be transferred into a PEP free of capital gains tax within 90 days of purchase.

There are three forms of single-company PEP. The self-select allows investors to make their own choice of share without any advice.

Many companies sponsor their own PEPs. Known as corporate PEPs, these can take up the pounds 3,000 single-company allowance and/or the pounds 6,000 allowance of a conventional PEP, giving a possible maximum investment of pounds 9,000. Companies usually farm out administration of their corporate PEPs to a third party specialist, such as a stockbroker, building society or bank.

Some stockbrokers also offer a managed single-company PEP.Charges on single-company PEPs are usually much lower than those on conventional PEPs. Many single-company PEPs have no initial fee and an annual charge of 0.5 per cent of the value of the shares. However, it is worth shopping around. Charges vary widely from one PEP manager to another, and even within the range of PEPs offered by a single manager. While the local branch of your bank or building society might be the easiest way to buy a single-company PEP, it could also be more expensive. The Chase de Vere annual PEP guide gives details of a wide range of single-company PEPs. The guide costs pounds 12.95 and is available by phoning 0800 526 091. If you buy a PEP through Chase de Vere subsequently, the cost of the guide is refunded.

Corporate PEP charges are usually subsidised by the company, producing the cheapest way to invest in the shares of a single company. Typically the company will pay the initial fee, or cover the cost of printing any literature, enabling the PEP manager to maintain charges at a lower level. Bradford & Bingley offers a range of 66 sponsored single-company PEPs, including Glaxo Wellcome, National Power and Tesco. Some charge an initial fee of pounds 15 plus VAT, an annual charge of 0.5 per cent plus VAT, and buying or selling charges of 0.25 per cent, but the majority have no initial charge at all.

National Westminster Bank administers 14 sponsored single-company PEPs with initial fees of pounds 10 initially (free to holders of conventional NatWest PEPs), annual charges of 0.5 per cent plus VAT, and dealing charges of 0.25 per cent. Managed or advisory single-company PEPs tend to be more expensive. East Anglian stockbroker Waters Lunniss makes dealing charges of 1.6 per cent for its advisory single-company PEP compared with 1 per cent for the self-select version.

Comments