What they mean when they say ... `Get yourself a PEP'

PEPs, or personal equity plans, are tax shelters that allow investors to earn income and capital gains from their investments free of tax. They were introduced by Nigel Lawson in his 1986 Budget as a means of promoting wider share ownership. Individual investors were allowed to invest pounds 2,400 a year in UK equities - including some unit and investment trusts - without paying income tax on the dividends they received or capital gains tax on any rise in the value of the shares or units. Investors could set up one PEP a year which was run by a plan manager who dealt with the administration and charged fees. Unfortunately many people found that their savings were swallowed up by charges and they were not a great success.

However, Norman Lamont's 1989 budget made PEPs much more attractive. Now individuals can invest up to pounds 6,000 a year in a general PEP (married couples pounds 12,000) and a further pounds 3,000 a year in a PEP that invests in a single company. This week the Inland Revenue announced that from 6 July investors will be allowed to include a wide range of fixed-interest securites such as corporate bonds (company IOUs) and preference shares in their PEPs.

Because PEPs allow a progressive building of substantial tax-free portfolios they have proved popular as savings vehicles for future bills, such as school fees and mortgage repayments.