Special Report on Peps and Tax Planning: Managers join transfer market: Switching your PEP sometimes makes sense, says Robert Cole

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The Independent Online
THE THOUGHT of transferring shares held in one personal equity plan to another at first seems pointless.

Surely the attraction of a PEP is the tax shelter it provides? Tax rates may change but you will get the same tax benefit whichever PEP you are in. Superficially at least, transferring is positively bad as you are likely to incur entry fees from the new manager. You may also have to pay closure fees to the old PEP manager. You will also have to pay dealing fees if transferring PEP means revising the share, unit or investment trust portfolio. However, while the drawbacks are substantial and should be carefully considered, there are circumstances where it is sensible to consider changing PEP manager.

PEPs were created in the 1986 Budget by the then Chancellor of the Exchequer, Nigel Lawson. Early subscribers to the schemes will now have held the assets in the PEP for upwards of five years.

That is a respectable period in which to expect equity- based assets to perform and produce profits. If shares held in a PEP created five years ago are languishing, it might be time to change PEP manager in the hope it will provide a change of fortunes. In addition, as the owner of a long- established PEP your requirements from stock market investments may have shifted. National economic circumstances have changed; so too have perceptions about profit ambitions from equity- based investment.

As Robin Bloor, an analyst with the PEP researchers Chase de Vere, says: 'In 1987 PEPs were very much geared to capital growth; now investors may want income and have to change manager to achieve that aim.'

One way of altering the shape of your PEP is to sell the investments and start again. However, by doing this you will lose the tax exemption carried over from when the plan was set up. For those with only a couple of thousand pounds earmarked for stock market investment, that is fine. More wealthy people can, however, hang on to the PEP allowance granted in previous years.

Remember, however, that it may well be possible - and cheaper - to alter the profile of the assets held in a PEP without changing PEP manager. Many investment houses offer a broad range of products, suiting widely different requirements.

PEP investors can choose to liquidate the share portfolio when changing PEP manager or transfer with the portfolio intact. However, if the portfolio is liquidated it has to be re-invested broadly in accordance with rules governing the creation of new PEPs. In addition, some investment institutions that specialise in unit or investment trusts may only take your money if you agree to put it into their unit or investment trust. Obviously that is no good if you want to shelter a particular company's shares.

There is comparatively little consumer interest in transferring from PEP to PEP at present. Only a handful of investment houses, of the dozens that attract PEP business, actively market their willingness to take on PEP transfers. But technically any can accept transfer business.

(Photograph omitted)

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