Personal Equity Plan
Encyclopedia
In the United Kingdom
a Personal Equity Plan was a form of tax-privileged investment
account. They were introduced by Nigel Lawson
in the 1986 budget for Margaret Thatcher
's Conservative
government to encourage equity ownership among the wider population. PEPs were allowed to contain collective investment
s such as unit trust
s. In 1992 a new type of PEP called a single company PEP was introduced only allowed to hold single company shares. To distinguish between the two types the original variety were called general PEPs.
Investments in a general PEP were limited to qualifying collective investment
s. Qualification was previously defined as an investment that invested at least half of its assets in the UK
and was later extended to the European Union
. The qualification rule for existing PEPs was removed in 2001.
Single company PEPs could be invested in shares in a single company. Additionally Windfall shares received by members from mutual bodies when they became listed companies could also register the holdings as a PEP.
.
s on April 6, 1999 by the new Labour government, no new contributions could be made into PEPs. Existing funds retain their tax privileges and can be transferred to alternative managers. Furthermore the distinction between general and single company PEPs was removed allowing more freedom of movement.
On April 6, 2008 PEP accounts automatically became stocks and shares ISA
s.
United Kingdom
The United Kingdom of Great Britain and Northern IrelandIn the United Kingdom and Dependencies, other languages have been officially recognised as legitimate autochthonous languages under the European Charter for Regional or Minority Languages...
a Personal Equity Plan was a form of tax-privileged investment
Investment
Investment has different meanings in finance and economics. Finance investment is putting money into something with the expectation of gain, that upon thorough analysis, has a high degree of security for the principal amount, as well as security of return, within an expected period of time...
account. They were introduced by Nigel Lawson
Nigel Lawson
Nigel Lawson, Baron Lawson of Blaby, PC , is a British Conservative politician and journalist. He was a Member of Parliament representing the constituency of Blaby from 1974–92, and served as the Chancellor of the Exchequer in the government of Margaret Thatcher from June 1983 to October 1989...
in the 1986 budget for Margaret Thatcher
Margaret Thatcher
Margaret Hilda Thatcher, Baroness Thatcher, was Prime Minister of the United Kingdom from 1979 to 1990...
's Conservative
Conservatism
Conservatism is a political and social philosophy that promotes the maintenance of traditional institutions and supports, at the most, minimal and gradual change in society. Some conservatives seek to preserve things as they are, emphasizing stability and continuity, while others oppose modernism...
government to encourage equity ownership among the wider population. PEPs were allowed to contain collective investment
Collective investment scheme
A collective investment scheme is a way of investing money alongside other investors in order to benefit from the inherent advantages of working as part of a group...
s such as unit trust
Unit trust
A unit trust is a form of collective investment constituted under a trust deed.Found in Australia, Ireland, the Isle of Man, Jersey, New Zealand, South Africa, Singapore, Malaysia and the UK, unit trusts offer access to a wide range of securities....
s. In 1992 a new type of PEP called a single company PEP was introduced only allowed to hold single company shares. To distinguish between the two types the original variety were called general PEPs.
Tax privileges
- Growth is free from capital gains taxCapital gains taxA capital gains tax is a tax charged on capital gains, the profit realized on the sale of a non-inventory asset that was purchased at a lower price. The most common capital gains are realized from the sale of stocks, bonds, precious metals and property...
within the fund and on encashment. - Income is free from income taxIncome taxAn income tax is a tax levied on the income of individuals or businesses . Various income tax systems exist, with varying degrees of tax incidence. Income taxation can be progressive, proportional, or regressive. When the tax is levied on the income of companies, it is often called a corporate...
.
Limited contributions and Suitable Assets
There were two types of PEP:- A general PEP with an annual allowance of £6,000.
- A single company PEP with an annual allowance of £3,000.
Investments in a general PEP were limited to qualifying collective investment
Collective investment scheme
A collective investment scheme is a way of investing money alongside other investors in order to benefit from the inherent advantages of working as part of a group...
s. Qualification was previously defined as an investment that invested at least half of its assets in the UK
United Kingdom
The United Kingdom of Great Britain and Northern IrelandIn the United Kingdom and Dependencies, other languages have been officially recognised as legitimate autochthonous languages under the European Charter for Regional or Minority Languages...
and was later extended to the European Union
European Union
The European Union is an economic and political union of 27 independent member states which are located primarily in Europe. The EU traces its origins from the European Coal and Steel Community and the European Economic Community , formed by six countries in 1958...
. The qualification rule for existing PEPs was removed in 2001.
Single company PEPs could be invested in shares in a single company. Additionally Windfall shares received by members from mutual bodies when they became listed companies could also register the holdings as a PEP.
Erosion of tax privileges
From April 6, 1999, the Advanced Corporation Tax relief on share dividends received on a PEP was halved, partially ending their tax exempt status. From April 6, 2004 all relief on dividends was removed, although no additional tax on a higher rate is due where otherwise it might be. Gains on capital and all other forms of income such as cash interest and bond income remained tax free. Significant cash holdings for any length of time are discouraged by the HM Revenue and Customs and the holdings in a PEP should be largely based on shares or corporate bondsBond (finance)
In finance, a bond is a debt security, in which the authorized issuer owes the holders a debt and, depending on the terms of the bond, is obliged to pay interest to use and/or to repay the principal at a later date, termed maturity...
.
PEPs replacement
Following the introduction of Individual Savings AccountIndividual Savings Account
An Individual Savings Account is a financial product available to residents in the United Kingdom. It is designed for the purpose of investment and savings with a favourable tax status. Money is contributed from after tax income and not subjected to income tax or capital gains tax within a holding...
s on April 6, 1999 by the new Labour government, no new contributions could be made into PEPs. Existing funds retain their tax privileges and can be transferred to alternative managers. Furthermore the distinction between general and single company PEPs was removed allowing more freedom of movement.
On April 6, 2008 PEP accounts automatically became stocks and shares ISA
Individual Savings Account
An Individual Savings Account is a financial product available to residents in the United Kingdom. It is designed for the purpose of investment and savings with a favourable tax status. Money is contributed from after tax income and not subjected to income tax or capital gains tax within a holding...
s.