Think before you wrap it

As you start to look for suggestions on what to do with your windfall shares, you will be advised from all sides: put them into a PEP. In many cases this is sound advice but, in the words of the old song, it ain't necessarily so.

For anyone who intends to use windfall shares to kick-start a continuing investment plan, looking ahead for five years or more, a PEP makes perfect sense. But, as so often in personal finance, the answer to the question "Should I PEP my shares?" is a clear-cut "It all depends."

If you are a non-taxpayer there are no advantages to putting your shares in a PEP. In fact you will lose out as you will receive no tax benefits but will have to pay charges for setting up the PEP.

Similarly, if you are only planning to keep windfall shares for a short time, perhaps to benefit from any early mark-up of the share price, then there is little point in putting the shares in a PEP wrapper.

Even if you are thinking of keeping your shares for a few years, a PEP can still prove an unnecessary expense. A basic-rate taxpayer with pounds 1,000 worth of shares yielding the average dividend of 4 per cent would earn pounds 40 income a year. If the shares are not in a PEP, pounds 8 of this dividend money would go in tax, but the charges on the PEP could well be more. If you want to keep your shares but decide not to PEP them, you can either have a share certificate from your building society or your society may offer to look after your shares for you.

Halifax is to offer a nominee share account for its new shareholders. It will look after their shares and arrange for dividends to be sent to them. The service is free for the first three years and shareholders can use Halifax's share dealing service. They can sell up to 1,500 of Halifax shares for just pounds 7.50 and any amount over 1,500 attracts a charge of 0.5 per cent.

Many may want to PEP their shares and this can make sense if, for example, you plan to keep your shares for several years. As time goes by the size of your investment and dividends will grow and the tax benefits of the PEP will become more apparent.

PEP holders may be able to put windfall shares in their existing PEP. As long as you PEP windfall shares within 42 days of their first day's trading, the shares will not count as part of your annual PEP allowance. Several PEP providers will let you hold on to your windfall shares. Others will accept your windfall shares, but they will then be sold and the proceeds invested for you in their investments.

It's important to remember that you can only invest in one general PEP and one single-company PEP each tax year. If your general PEP provider will not accept windfall shares, you will either have to open a single- company PEP, in which you will be able to put only one company's shares, or you will have to look at transferring to another provider.

If you don't have a PEP but want to PEP your windfall shares you can go to any of the major institutions or look at the PEP options being offered by the mutuals as they convert. If you are only receiving one set of windfall shares you can put your shares in a single-company PEP or a general PEP. If you want to PEP several sets of windfall shares, you will need a self-select general PEP.

Your building society may offer a single-company PEP service. Halifax is charging an annual management fee of 0.5 per cent plus VAT on its single- company PEP and the minimum fee will be pounds 10. You are unlikely to find a cheaper deal than this. The snag is that if you want to shelter any other shares later this year you would have to open another PEP. Single- company PEPs are inflexible and it rarely makes sense to open one if you can open a general PEP instead.

If you have more than one lot of shares to put in a PEP, or if you think you may want to put other shares, unit trusts or investment trust shares in your PEP, you will need a self-select general PEP. These are offered by high street banks, stockbrokers, and phone-based share dealing services.