A personal equity plan (PEP) was a form of tax-privileged investment account in the United Kingdom, available between 1986 and 1999.

History

The plans were introduced by

Nigel Lawson Nigel Lawson, Baron Lawson of Blaby, (11 March 1932 – 3 April 2023) was a British politician and journalist. A member of the Conservative Party, he served as Member of Parliament for Blaby in Leicestershire from 1974 to 1992, and served ...

in the 1986 budget to encourage equity ownership among the wider population. PEPs were allowed to contain

collective investment An investment fund is a way of investment, investing money alongside other investors in order to benefit from the inherent advantages of working as part of a group such as reducing the risks of the investment by a significant percentage. These ad ...

s such as

unit trust A unit trust is a form of collective investment constituted under a trust deed. A unit trust pools investors' money into a single fund, which is managed by a fund manager. Unit trusts offer access to a wide range of investments, and depending on ...

s. The ''single company PEP'', which was allowed to contain

shares In financial markets, a share (sometimes referred to as stock or equity) is a unit of equity ownership in the capital stock of a corporation. It can refer to units of mutual funds, limited partnerships, and real estate investment trusts. Sha ...

of a single company, was introduced in 1992. PEPs were superseded by individual savings accounts in 1999, and remaining accounts were converted to individual savings accounts in 2008.

Types and privileges

Growth in a PEP was free from

capital gains tax A capital gains tax (CGT) is the tax on profits realized on the sale of a non-inventory asset. The most common capital gains are realized from the sale of stocks, bonds, precious metals, real estate, and property. In South Africa, capital g ...

within the fund and on encashment. Income was free from

income tax An income tax is a tax imposed on individuals or entities (taxpayers) in respect of the income or profits earned by them (commonly called taxable income). Income tax generally is computed as the product of a tax rate times the taxable income. Tax ...

. When introduced in 1986, the fund was limited to £2,400 (annual allowance), but later increased to two types of PEP: the "general PEP" with an annual allowance of £6,000 and the "single company PEP" with an annual allowance of £3,000. Investments in a general PEP were limited to qualifying

s. Qualifying investments had at least half of their assets invested in the UK, later extended to the

European Union The European Union (EU) is a supranational union, supranational political union, political and economic union of Member state of the European Union, member states that are Geography of the European Union, located primarily in Europe. The u ...

. The qualification rule for existing PEPs was removed in 2001. Single company PEPs could be invested in one company only. One way they could be used was to hold windfall shares received by members from mutual bodies when they became listed companies.

Evolution

Beginning 6 April 1999, the Advanced Corporation Tax relief on share dividends received on a PEP was halved, partially ending their tax-exempt status. From 6 April 2004 all relief on dividends was removed, although no additional tax at the higher rate was due where otherwise it might have been. 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 were discouraged by

HM Revenue and Customs His Majesty's Revenue and Customs (commonly HM Revenue and Customs, or HMRC, and formerly Her Majesty's Revenue and Customs) is a department of the UK government responsible for the collection of taxes, the payment of some forms of stat ...

; the holdings in a PEP were supposed to be shares or corporate bonds.

Replacement

Following the introduction of individual savings accounts on 6 April 1999, no new contributions could be made into PEPs. Existing funds retained their tax privileges and could be transferred to alternative managers. The distinction between general and single company PEPs was removed. On 6 April 2008, PEP accounts automatically became stocks and shares individual savings accounts.

References

{{Reflist

External links

HM Revenue & Customs: Individual Savings Account and Personal Equity Plans

Financial services in the United Kingdom Investment 1986 introductions Personal finance Tax-advantaged savings plans in the United Kingdom