This week we examine the new PEP & ISA rules which come into effect on 6th April 2008. Whilst on the subject, we would also remind you of the rapidly approaching end to this tax year, so if you have unused ISA allowances for this year from which you want to benefit, you need to act before 5th April.
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New ISA Rules
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20 odd years after the introduction of Personal Equity Plans (PEPs) by a Conservative government, and nine years after Labour replaced them with Individual Savings Accounts (ISAs), we are once more facing major changes to the rules.
What were the old rules?
With PEPs, you could invest up to £6,000 a year in shares or funds, with the proceeds being paid free of income and capital gains tax. An additional £3,000 could be invested in a single-company PEP, which held shares in only one company. The Major government introduced Tax-Exempt Special Savings Accounts (TESSAs) in 1991, which allowed up to £9,000 'cash' to be saved tax-free over a five-year term.
The ISA regime, which replaced both PEPs and TESSAs, was less generous and inevitably more complicated. Only £7,000 a year could be invested, with a maximum of £3,000 in cash. There were "mini" and "maxi" ISAs, and if you had a maxi-ISA which allowed the full £7,000 to be held in stocks and shares (including funds), you could not take out a mini-ISA in the same tax year.
How do the new rules differ?
From the start of the new tax year on 6 April 2008, the rules are going to change substantially. The mini and maxi distinctions have been eliminated and the overall contribution limit raised to £7,200.
Up to £3,600 of the £7,200 allowance can be held in a cash ISA, with any remaining allowance (i.e. up to the full £7,200 if a cash ISA is not used) available to invest with either the same or a different provider in a stocks and shares ISA.
Under the new rules, mini cash ISAs, TESSA-only ISAs (TOISAs) and the cash components of maxi-ISAs will become cash ISAs, while mini stocks and shares ISAs and the stocks and shares components of maxi-ISAs will become stocks and shares ISAs.
What happens to my PEPs?
Since the demise of PEPs in 1999, no new subscriptions have been allowed, but rollover vehicles have been available for PEP transfers. From 6 April, all PEP investments will be re-badged as stocks and shares ISAs, and investors will be able to continue to contribute to them, taking advantage of the wider range of permitted investments in ISAs, so long as they are not contributing to another stocks and shares ISA in the same tax year. Continued....
Check out your existing funds
Before using your tax-free ISA allowance for the 07-08 year, which you must do before 5 April to benefit, it's a good idea to check out how well or badly your existing funds are performing. You can do this very simply by registering your funds with Moneyspider.
Read More >>>
Moneyspider.com>>>
Compare ISA Accounts>>>
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