IR9 29 November 1994 PERSONAL EQUITY PLANS (PEPs) The Chancellor proposes in his Budget to extend the range of eligible investments for general PEPs to include certain corporate bonds, convertibles and preference shares. The Chancellor's intention is to widen the range of investments which people can put in a PEP; and to help encourage the development of new sources of finance for companies. It is expected that this measure will take effect on, or as soon as possible after, 6 April 1995, subject to consultation on the necessary changes to the Regulations. DETAILS 1. Under current rules, direct investment in PEPs is restricted to quoted United Kingdom ordinary shares or similar shares in European Community companies. Individuals may also invest in unit and investment trusts in a general PEP, provided the trusts satisfy a number of conditions governing their investments. The Chancellor proposes to extend general PEPs to a range of United Kingdom corporate bonds and convertibles and United Kingdom and European Community preference shares. 2. The Budget proposals will mean that individuals will be able to invest up to the full general PEP limit of pounds 6,000 directly in i) United Kingdom ordinary shares or similar shares in European Community companies; ii) specified corporate bonds and convertibles of United Kingdom non-financial companies; and iii) preference shares in United Kingdom and European Community companies. All the investments must be in quoted companies. 3. In addition, unit and investment trusts which hold at least half their assets in the instruments listed at 2(i) to (iii) above will be eligible for the full pounds 6,000 general PEP limit. The trusts' investments may be in quoted or unquoted companies. 4. In order to qualify for inclusion under the new rules, corporate bonds will need to have a minimum term of at least five years to maturity and be issued at a fixed rate of interest. 5. The Inland Revenue will be consulting on the Regulations needed to implement the new provisions, including, in particular, other detailed rules for corporate bonds and "non-qualifying" trusts. 6. Subject to the consultation process, it is intended that these measures will take effect from 6 April 1995. Regulations will also be made to allow newly constituted open-ended investment companies to qualify for PEPs on the same terms as authorised units trusts (see press release IR44); and to extend the range of persons able to market PEPs in the United Kingdom to include certain European institutions. Statistics 7. In the tax year 1993-94 1.38 million new general plans and 190,000 new single company plans were taken out, with pounds 5.72 billion and pounds 490 million invested respectively. These figures are the highest for a single tax year since PEPs began in 1987. NOTES FOR EDITORS 1. PEPs were introduced on 1 January 1987 to encourage share holding by individuals. Income and capital gains on investments held in a PEP are exempt from income tax and capital gains tax, and withdrawals from plans are, normally, tax-free (except where interest on cash deposited in the plan is withdrawn without ever having been invested). 2. Currently, up to pounds 6,000 in a tax year may be invested in a general PEP and, since January 1992, up to pounds 3,000 in a tax year may be invested in a single company PEP. 3. Under current rules, direct investment in PEPs is restricted to United Kingdom ordinary shares or similar shares in European Community companies. To qualify for the full pounds 6,000 general PEP limit, unit and investment trusts must hold at least half their assets in United Kingdom ordinary shares and similar shares in European Community companies. Unit and investment trusts which do not satisfy this requirement (known as "non-qualifying trusts") may qualify for annual PEP investment of up to pounds 1,500 if they hold at least half their assets in United Kingdom ordinary shares or similar shares listed on a stock exchange anywhere in the world, provided the exchange is recognised by the Inland Revenue. Costs 4. The cost of this measure is pounds 10 million in the tax year 1995-96, pounds 25 million in 1996-97 and pounds 40 million in 1997-98. 5. The take up of general plans since the scheme began is Year No. of plans Amounts invested taken out (000s) (pounds millions) 1987 270 480 1988 120 200 1989 and first quarter 1990 580 1,600 1990-91(tax year) 500 1,600 1991-92(tax year) 640 2,260 1992-93(tax year) 770 3,120 1993-94 1,380 5,720 Total 4,260 14,980 7. The take up of single company plans is Year No. of plans Amounts invested taken out (000s) (pounds millions) First quarter 1992 110 270 1992-93(tax year) 140 370 1993-94(tax year) 190 490 ___ _____ 440 1,130 8. The figures of amounts invested in general and single company plans do not reflect subsequent withdrawals or growth in plan values.