The high Pep costs of saving tax

Article Abstract:

UK investors can obtain tax benefits from using personal equity plans (Peps) but they should beware of high charges which can eliminate the tax advantage. This is especially true for self-select Peps where investors could sometimes achieve better returns investing outside a Pep. Capital gains relief is less important for many investors than income tax benefits. Investors should only choose Peps if they are happy to accept a certain risk level. Peps tend to involve higher charges, though this is less true for unit trust Peps.

Analysis

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Investors the victims of changing charges

Article Abstract:

United Kingdom investment trusts and unit trusts have been affected by the abolition of tax credits for dividends. This has reduced the dividend level paid by some trusts, and some trusts are also moving to paying charges from capital instead of income. Investors who do not pay capital gains tax, and who do pay income tax, will be penalised by such a move, since income will be higher than otherwise, and capital growth will be reduced. Regulators should ensure that investors are aware of the implications of the change.

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Shifting fee structures

Article Abstract:

Fees for UK personal equity plans (Peps) can affect returns to the extent that investors would obtain better returns from using a deposit account. Fees have tended to fall, though annual management fees can increase long term costs of Pep investments. Initial charges have been replaced by exit charges by some companies. Dividend collection charges may be levied by some brokers for each dividend collectedand this can push up costsfor investors seeking an income.

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