PEPs
Personal Equity Plans (PEPs) were available for investment between 1987 and 1999, allowing investment into stock market related funds free of income and capital gains tax.
When PEPs were introduced in 1987 by the then Chancellor, Nigel Lawson, the idea was specifically to encourage people to buy company shares but an initially limited range of possible investments in PEPs was ultimately widened to include unit trusts, investment trusts and corporate bonds.
New PEPs are no longer available but you may retain any investments you have already made under the tax-shelter umbrella offered by PEPs, which is now similar to that offered by Individual Savings Accounts (ISAs)
The costs of running PEPs vary enormously according to whether you hold shares, unit trusts or investment trusts. With shares held directly, there'll be a stockbroker commission every time a trade is made; managed funds, such as unit or investment trusts will have charged you an initial fee as well as an annual management charge. These are set as a percentage of the amount you invest. e.g. usually between 0% and 6% for an initial charge and up to 2% for an annual management charge.
You may still face initial charges if you are transferring funds in PEPs to a new fund manager. PEP transfers are often treated as new business although some providers discount initial fees for transfers or make cut-price offers for investments over certain amounts.
Your existing PEP manager may also make a charge for the withdrawal of funds. Such transfer penalties vary from 0% up to 5% in some cases for transfers within one year. There is also likely to be a small fee for leaving the PEPs scheme which is likely to be between £25 and £50 plus VAT.
You may minimise the cost of transferring your PEPs investments by using an independent financial adviser to negotiate a reduced fee or by using a discount broker who will refund commission, providing you do not need advice.
Always remember, low charges can be attractive, but cheapest is not always the best. PEPs fund managers can be worth the money they are paid.