Special Report On Personal Equity Plans: 'Top-up' plans create new opportunities: Charges vary a good deal over the thriving range of single company PEPs, a recently created branch of the industry. Christine Stopp reports

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SINGLE company PEPs allow you to put pounds 3,000, apart from your pounds 6,000 general PEP allowance, into the shares of one company, with the same tax advantages as general PEPs. The introduction of single company PEPs has created a new branch of the PEP industry, with around 200 managers offering these 'top-up' plans.

Inevitably, the new class of PEP has spawned several different categories: self-select, where you can choose your own company from a wide range; managed, where the company is chosen for you; and corporate plans, where the PEP is set up by the company itself for dealing in its own shares and run by an outside PEP manager.

A corporate plan need not be restricted to the pounds 3,000 limit. It can be run as a general PEP, allowing the full pounds 6,000 investment in one company's shares, though this would only be an appropriate strategy for the very large investor. To get round this problem, some corporate PEPs allow the investor to invest in other UK shares as well.

Corporate PEPs were established mainly with employee shareholders in mind. If you have been saving in an employee share option scheme for a number of years you can transfer your shares into a PEP provided you do so within 90 days of purchase. Corporate PEPs may be confined to employee shareholders or they may be open to the public as well. They are usually a very cheap way of buying shares, but have the disadvantage of locking you into one company. With a managed or self- select PEP a switch between different holdings is possible (though the whole of one year's plan must be invested in only one company's shares).

Corporate single company PEPs may have very low charges. Those run by the Bradford & Bingley Building Society have a fixed initial charge of pounds 15, or pounds 10 for transfers from employee share purchase schemes (0.5 or 0.3 per cent respectively of a pounds 3,000 investment) and an annual charge of 0.5 per cent. Dealing costs are 0.75 per cent including stamp duty on share purchases and 0.25 per cent on sales. Severn Trent, Christian Salvesen, and Wellcome are examples of Bradford & Bingley PEPs where the company pays some or all of the charges.

Outside these corporate plans charges can be much higher, though a few managers charge less for a single company PEP if it is bought at the same time as a general PEP. It is hard to generalise about charges. A number of managers make a 4 or 5 per cent initial charge plus a 1.5 per cent annual charge. Others have no initial or annual charge at all.

The table gives sample charges for buying pounds 3,000 of shares in BAA and holding them for a year, assuming no growth in value, through the company's own PEP, run by Barclays, through the Fidelity-managed PEP, which is currently putting clients into BAA, and through Mercury's self-select PEP, which allows investors to choose any FTSE share.

The two non-corporate plans have much higher acquisition charges, but allow for future switches. BAA itself has a general PEP which accepts investments in any privatisation or FTSE shares. Charges are the same as for the single company PEP except for a pounds 15 minimum annual fee.

Single company PEPs can be used to 'shelter' an existing shareholding by selling shares and buying them back again within the PEP. This practice has not been welcomed by the Inland Revenue and can only be carried out where the investor is exposed to the market and a full bid/offer spread applies between purchase and sale. Investors wishing to do this before the end of the tax year should check on deadlines: Bradford & Bingley, who will make a sale and repurchase transaction for a 1 per cent brokerage charge, cannot accept applications after 15 March.

------------------------------------------------------------------------ THE COST OF BUYING BAA ------------------------------------------------------------------------ Total Initial Annual Dealing cost of buying and (ex. VAT) (ex. VAT) (+0.5% holding stamp 1 year duty) (pounds 3,000) Barclays - 0.5% 0.5% 47.62 (BAA Corporate PEP) (min pounds 10) Fidelity 2% 1% 0.2% 126.75 (Managed) Mercury 3% 1% 0.5% 171.00 (Self-select from FTSE stocks) ------------------------------------------------------------------------

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