News/Events

Now could be the right time to review your holdings [19th November 07]

There seems to be confusion in the market place over Personal Equity Plans (PEPs) and what is going to happen and when. I have been approached recently by a number of clients who are concerned that they may be losing a valuable tax efficient investment – Not so!

Although PEPs celebrate their 21^st Birthday in January, they will not be around much longer. From 6^th April 2008, PEPs will be merged into Individual Savings Accounts (ISAs) which was the replacement tax exempt scheme brought in during the nineties in order to encourage wider share ownership.

As usual the Governments aim, and in this case they may be proved right, is to make savings more easily understood by the investor and administering simpler for the provider. Although PEP rules were aligned with ISA rules in 2001, it has been necessary for investment managers to keep them separate for administrative purposes. From now on they will be able to place all the money in one pot.

The vast majority of PEP investors will not notice any difference apart for the disappearance of the name. However if you have the same holding in, say, a unit trust for both a PEP and an ISA with the same provider, then it will be amalgamated so it will be a good idea to check your old statements or valuation with the new one provided after April 2008.

There could be good news for PEP and ISA investors who utilise them to self select their own shareholdings. Currently, if you hold the same share in both accounts and you want to sell, then it is likely to be classed as two separate deals and charged twice. From April it will be one account and the charges should be less. 

April 6^th 2008 also sees an increase in the allowance of £200 to £7200 – those investing the maximum monthly will be pleased as it is now a nice round figure of £600! Mini ISAs are being abolished and there will no longer be such rigid limits. A maximum of £3600 can be saved in a cash ISA but if you do not want to invest that much, the remainder can now be invested in an Equity ISA eg £2000 into a cash ISA and £5200 in an Equity ISA. Past years cash ISAs/TOISAs can be moved into Equity ISAs but you will not be able to transfer money back into Cash ISAs from Equity ISAs. This is based on our current understanding of tax rules which can, and often do, change.

The changeover of PEPs to ISAs will make no difference to the way your PEP is taxed and neither will transferring your PEP money to a new provider affect the tax breaks provided you do not cash in your investment first and carry out what is known as an internal transfer. You simply need to ask the new provider for a transfer form and they will deal with your request accordingly. But, better still, transfer all your individual PEPs to a fund supermarket and you could then switch between funds as and when you like, however fund Supermarkets are not suitable for all ISAs or PEPs and often have higher charges than single providers.

Without doubt, now could be an opportune time to review your holdings especially if you have held them for the last 10 or 15 years. Maybe their performance has wavered or your investment objective or attitude has changed.

Langtons offer reviews without charge or obligation.

This article was written by Langtons - Published in the Western Morning News, This is Money, 19th November 2007