The right time for a PEP talk

Move quickly to make the most of this year's Personal Equity Plan allowances

The tax clock starts ticking on Tax-Exempt Savings Schemes on the day you open the account and ticks on for the next five years oblivious of the intervening tax years, before you can take your interest away tax free, so there is no rush to start a Tessa in the next few days. But Personal Equity Plans (PEPS) and their younger cousins Corporate Bond PEPS are regulated by the tax year.

Anyone over the age of 18 can put up to pounds 6,000 in a general PEP or a general Corporate Bond PEP containing a range of individual shares or bonds, plus pounds 3,000 into a PEP invested in the shares of a single company or the bonds of a single company. The package can be from a PEP provider who is usually a bank, building society, stockbroker, investment trust or unit trust manager. They provide standard packages of eligible shares or units for a PEP (or fixed-interest bonds for a Corporate Bond PEP), and ensure they are placed in a PEP "wrapper" to make sure that as long as they are held the investor will not be liable to income tax on the dividends or capital gains tax on the proceeds.

The tax incentives are attractive to basic rate taxpayers and doubly attractive to higher rate taxpayers and those who make capital gains in excess of their annual allowances. There is no need even to declare the income or the investment on tax forms.

PEPS and their Corporate Bond cousins can be bought at any time of the year and the tax benefits begin immediately. Each year investors can add to their holdings, and 10 years after they were first introduced there is still no sign of this government introducing a ceiling.

But unused PEP allowances cannot be carried forward from one tax year to the next and anyone who fails to invest before April 4 will have lost the opportunity, for 1995-96 at least. Investors can also switch their PEP from one manager to another at this time of year. Many PEP providers are also offering investors the chance to invest this year's and next year's allowances almost simultaneously. So especially at this time of year there is no shortage of advertisements extolling the praises of individual PEPS, especially those based on existing investment or unit trusts which can show an impressive investment track record.

Investors can choose between High Income PEPS, Growth PEPS and Tracker PEPS, which make a virtue of following one of the main stock market indices as closely as possible. They can invest in unit trusts and in investment trust PEPS, provided the managers in turn invest in a majority of shares listed on the UK or EU stock exchanges, and they can invest in Corporate Bond PEPS provided they invest in bonds denominated in sterling and issued by UK based companies.

They can even find a guaranteed income PEP on offer from GAN insurance which offers a guaranteed return of capital, and 4 per cent tax-free income, plus a further 4 per cent if the 100 share index has not fallen between 8 March one year and the next. Providers such as Legal & General and Johnson Fry have also packaged their own bonds to provide a guaranteed income on their Bond PEPS.

Alternatively the investor can approach a stockbroker and choose his own shares for a Self-Select PEP, which the broker will then take care of, buying and selling shares and collecting tax rebates on the dividends in return for fees.

Investors can only have one PEP or Corporate Bond PEP per year and six out of 10 investors make a single annual investment, although small investors will easily find a number of providers who are willing to accept regular monthly contributions to a PEP.