ISA Peps

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ISA Peps

An ISA is not itself an investment. It is a wrapper you can put around all sorts of savings and investment products, making the returns from those products tax-free. Many products, such as, unit trusts, come ready-made in standard ISA and standard non-ISA forms. You can also opt for a self-select ISA. This lets you pick and mix, putting the investments of your choice within the ISA wrapper. It can be ideal, if you like to hold shares direct.

In general, only quoted shares can be included within an ISA. In the UK, this includes Techmark shares along with other shares listed on the main London Stock Exchange. However, you can include employee shares which you have received through a savings-related share option scheme or an approved profit-sharing scheme at work, even if they are unquoted. You must make the transfer within 90 days of acquiring the shares. An ISA cannot include shares traded on the Alternative Investment Market (AIM), Ofex or Tradepoint. Shares traded on foreign stock markets are eligible provided they are listed on a recognised stock exchange.

Many stockbrokers and some banks offer self-select ISAs. Make sure that the charges for running the ISA do not outweigh the tax gains from putting your shares within the ISA wrapper.

Single-company personal equity plans (PEPS)
A PEP is not in itself an investment. It is a tax-efficient wrapper that you can use to invest in shares and certain other investments. The government originally introduced PEPS to encourage direct investment in shares. However, their scope was expanded over the years to encompass a much wider range of investments. You can no longer newly invest in a PEP.

However, PEPS you already held on 5 April 1999 can continue. You can have either or both of the two types of PEP: a general PEP and a single-company PEP. You can hold either general PEPS (investing in a range of investments) or single company PEPs which, as the name suggests, hold the shares of just one company at a time, although you can switch from one company to another.

The shares must be UK ordinary shares, similar European Union (EU) shares, shares issued under an approved employee savings-related share-option scheme or profit-sharing scheme, or 'paired shares' that is, where shares in one company are bought and sold only in combination with the shares of another associated company. You can no longer newly invest in PEPs. However you can switch from one PEP manager to another.

As for direct investment in shares. PEPs are not investments; they are a tax-efficient 'wrapper' under which you invest. The return from investments held in a PEP is completely tax-free. However, from April 2004, income from shares held in a PEP will become taxable, and your PEP manager will no longer be able to reclaim the tax already deducted from dividends.

Capital gains are tax-free. In addition to the charges associated with buying and selling shares, extra charges may be made to cover the costs of running the PEP vary, so you should shop around.

As for direct investment in shares. Bear in mind that you can hold the shares of only one company at a time in a single-company PEP. However, you can use different tax years' PEPs to invest in different shares, forming a portfolio in that way. In addition, your PEPs should be viewed in the context of the full range of investments that you hold. Warning, investing directly in shares, you should ideally invest a minimum of around £15,000 to £20,000 in 12 or more different companies to protect yourself adequately from risk and to avoid dealing charges eating too heavily into your profits. For many investors, pooled investments, such as, unit trusts, OEICs, investment trusts and exchange-traded funds, will be the better option.

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