Personal Equity Plan
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In the United Kingdom a Personal Equity Plan is a form of tax-free savings account. They were instituted in 1987 by the Thatcher government to increase the incentive to save. Investment into PEPs have since been frozen and the government is encouraging the use of the replacement Individual Savings Accounts, but many remain active.
The annual allowance into a PEP was £6,000 into a General PEP which had to be a collectively managed fund (see mutual fund) that qualified. 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 has since been removed. Further to this £3,000 could be invested in a Single Company PEP which was classified as 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.
From April 6th 1999, the Advanced Corporation Tax relief on share dividends received on a PEP was halved, partially ending their tax exempt status. From April 6th 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 Inland Revenue and the holdings in a PEP should be largely based on shares or corporate bonds
Following the introduction of Individual Savings Accounts no new contribution could be made into PEPs, although existing funds can be swtched and the disticntion between general and single company PEPs has been removed allowing more freedom of movement.