Personal Equity Plans (PEPs)
Rules
You may not take out any new PEPs or invest more money in those PEPs you already have. However, any savings invested in PEPs before 6 April 1999 still benefit from the same tax breaks as ISAs. That is to say, your PEPs are still free from capital gains tax and free of any further income tax. After 5 April 1999, you still have no tax to pay on income or capital gains from investments in PEPs.
Prior to 6 April 1999, dividends paid by UK companies carried a 20% tax credit and investors with PEPs received payment of these credits. From 6 April 1999 the value of this tax credit fell to 10% and it was payable to investors in PEPs until 5 April 2004. This tax credit is no longer available and basic rate tax paid on dividends may not be reclaimed. Thus PEPs (and ISAs) are no longer strictly 'tax free' but are 'tax advantaged'. Higher rate taxpayers holding PEPs benefit from the fact that they have no further tax to pay on the dividends received in their PEPs.
On 6 April 2001 the distinction between the two types, general PEPs and single company PEPs was removed, ending the rule that limited investments in the latter to shares of a single quoted company.
Background
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