Your Money: BT3 promises added Pep

INVESTORS are beginning to see the tender side of BT3. The deadline for registering for the public offer has been and gone, and although there is an absence of frenzy over the issue, brokers doing their arithmetic have concluded that the public offer will be oversubscribed.

So investors should keep applications low - opinions vary between under 500 shares and under 1,000 shares - and still expect to be scaled back.

The enthusiasm is for the yield over the short term rather than instant profits on a booming share price.

The final dividend of 9.45p net per share is paid on 30 September. The shares go ex- D, which means they can be sold and you still retain the right to the dividend, on 16 August. Then there is another payment, an interim dividend of around 6p, due to be made in February with an ex- D date in mid-December.

Of course, these predictable pay-outs will not take the stock market by surprise and will be fully reflected in the share price. But underpinning of this sort of dividend stream paid on partly paid shares produces a comfort on the share price. The second call is not due until March.

Applying in the public offer brings a 10p discount on the first payment - pounds 1.50 rather than the pounds 1.60 paid in the tender. It also offers the choice of a 10p discount on the next two calls or bonus shares. But tender applicants will get a bigger bite - especially it they want to put the shares in a personal equity plan - and there is still time to act even if you have not managed to register yet.

The minimum application is for 1,000 shares and the maximum for Peps is 2,000, with no maximum otherwise.

In spite of Inspector Morose ignoring the tender offer - a blessing, some would say, or there might be even more confusion - it is proving a temptation. The Share Centre says one in five applying through the public offer are also requesting forms to apply in the tender as well.

But most share shops will not tango with the tender part of the BT3 offer. Midland Bank customers can ask Midland Stockbrokers to act for them. A handful of brokers will accept new clients for tender applications. These include Barclays Stockbrokers, The Share Centre (0891- 123808), Henderson Crosthwaite (0800-581206) and Killik & Co (071-589 1577).

So if you have not already taken up a Pep for this tax year, starting out with a good helping of BT should give it a comfortable start.

THE GOVERNMENT may be worried that too much money is going into legal, decent and handy tax-free zones. Those who have been putting the maximum into Peps each year - now pounds 6,000 into a regular Pep plus pounds 3,000 into a single-company Pep - would have built up a tidy sum.

Deposit-based Tessas that started with a pounds 3,000 maximum in the first year, and have an overall limit of pounds 9,000 after five years, are also beginning to build up.

Perhaps the November Budget is time for a rethink. Barclays Stockbrokers has been bending the Government's ear with the idea that a single overall limit could be set for tax-free savings.

If this was, say, pounds 30,000, many would already be at the limit. It would stop the rather well-off amassing any more savings at taxpayers' expense, while still allowing the less affluent to build up a reasonable nest-egg - perhaps against the time when the State withdraws from pensions, sickness and unemployement benefit and the health service.

The Government would specify that up to 15 per cent could be kept in cash, and perhaps earmark a percentage for gilts to help its struggle to balance the books.

The administration for a single tax-free savings zone would be simpler. That would reinforce the dominance of a few large players.

This would not matter if there was still freedom for smaller fund managers to offer own-brand, competitively priced deals to the public.

ANOTHER area ripe for Budget action is the vacuum created by the ending of the Business Expansion Scheme.

A special category of investments in unquoted companies could be built into the single tax-free package.

But the Government should tread warily if it plans to use tax breaks to rekindle the property market. It may be tempted to promote rented housing by offering carrots to investors caught out by the assured property BESs just maturing with disappointing results - but if they were not taking a risk on a worthwhile project, why were taxpayers stumping up 40 per cent?