Time for a PEP talk?

Personal equity plans (PEPs) which celebrated their 21st birthday this January will not be around for much longer. Latest figures from HM Revenue & Customs show that more than £79 billion is still invested in PEPs, but from April this year they will be merged into ISAs and the tax−exempt scheme introduced to encourage wider share ownership will cease to exist.

The aim is to make savings simpler for investors to understand and more straightforward for providers to administer. Although PEP rules have been aligned with ISA rules since 2001, investment managers have still had to keep them separate for administration purposes. Now they will be able to combine the money.

Most PEP investors will not notice any difference, apart from the disappearance of the name. Currently if investors hold shares in the same company in both their PEP and ISA and want to sell them, this is likely to be treated as two separate deals, so they could be charged twice. From this April they will have only one account, so it would be one deal and they should be charged less.

PEP investors will not have to do anything. Their managers will be responsible for the changeover. If the manager has separate nominee accounts for PEP and ISA holdings, this could mean that holdings will be reregistered into the ISA nominee account. Therefore, it is probably a good idea to check your statements before and after April to make sure nothing has gone astray.

The change from PEPs to ISAs will make no difference to the way your PEP investments are taxed. The tax treatment of PEPs was brought into line with ISAs when the latter were launched in 1999. Transferring your PEP money to a new investment manager will not affect your tax breaks either, provided that you do not cash in your investment first.