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Bryan Fisher on how to pick a PEP for windfalls from building society conversions
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The Independent Online
Q: I shall get several sets of free shares from building societies converting to banks this year. I do not want to sell the shares. Can I simply put them into a personal equity plan (PEP) even though I have not actually paid cash for them, and if so how do I set about it?

A C, Huddersfield

A: It is certainly possible to put your free shares from the building society conversions into a personal equity plan. The Inland Revenue has, in fact, even given a concession that these shares can be in addition to the normal annual pounds 6,000 general and pounds 3,000 single-company PEP allowances, provided the shares are put into a PEP within 42 days of allocation.

There are, however, other rules which you have to be careful not to break. You are only allowed to use the services of one PEP manager per financial year. Thus if you already have either a single-company or general PEP the same manager has to be used. However, not all managers are able to provide this facility. This will need to be clarified therefore with the plan manager.

The individual building societies converting will offer their own single- company PEP plans but if you have more than one set of shares then you will have to use a manager who can handle both unit trusts and shares under a PEP wrapper. If you have made no previous PEP arrangement in the 1996/97 tax year then obviously you must consider the package that will be offered by the building society you are an investor in or borrowing member of.

The charging structure is the only concern when selecting a suitable plan manager for your single-company PEP. This is very different from a general PEP where there is a fund to manage, and the performance of the manager is a more important factor. Therefore make sure you shop around to locate the cheapest company for the shares you wish to PEP.

All the building societies converting will send details of how to put your shares into a PEP before the shares are issued. If you need guidance on the PEP managers able to accept additional single company shares you should consult your independent financial adviser, as there are several to choose from and the charges vary.

On a more general note, I would advise you to seek professional advice and discuss the merits of holding direct equities, especially in companies such as Halifax PLC. This discussion will ideally examine the tax implications (income and capital gains) to you personally. Also, as you are aware, the price of equities can fall as well as rise and you therefore have to appreciate fully the risks involved. Having said that, certainly the institutional demand for these equities will no doubt be very strong.

Halifax shares are likely to enter the FTSE 100 fairly high up and will no doubt perform well, as other financial institutions have done of late.

There will certainly be plenty of activity within the market this year with the conversion of Halifax, Northern Rock, Woolwich and Alliance & Leicester. It is estimated that the share value of just these four institutions will top the pounds 20bn mark. No doubt many people will choose to take the money and run, which will give a short-term injection of the "good old feel-good factor".

By the turn of the century there will be many more building societies following a similar path. I would suggest therefore, if you have spare funds following the current crop of share allocations, it may still be worth speculating on who is likely to be next. With this in mind I would suggest that you place a deposit with a broad spread of building societies in your own high street.

As with all investments do not put all of your eggs into one basket. But make sure you choose an account that qualifies you as a member and bear in mind some societies accept members with as little as pounds 100; others have raised the minimum qualifying investment to as much as pounds 2,000.

Bryan Fisher is financial planning manager at Berkeley Financial Planning in Coventry. Readers are very welcome to put their questions to him. Letters should not exceed 250 words please.

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