Attractions of staying single

Investors who want to maximise their PEP allowance, should not forget about single-company PEPs. Under the rules you can invest a further pounds 3,000 a year in a single-company PEP after using up your pounds 6,000 general PEP allowance.

Plans of this type were introduced to enable employees to obtain the tax shelter of a PEP for shares they owned in their company. The single- company PEP is also an ideal vehicle for investors who are looking to build up a large holding in one particular company's shares.

Normally, if you own shares and want to put them into a PEP, you have to sell the shares and get your PEP manager to buy them back. Not only is there usually a charge for this, it also can have capital gains tax implications. But with shares bought or received at a preferential rate through your employee share option or profit-sharing scheme, this does not happen as long as you put them in a single-company PEP within 90 days. Companies operating these share schemes often appoint a PEP manager to set up a scheme for employees and the charges on such a scheme are usually low.

You can only hold the ordinary shares of one European Union company in a single-company PEP. Investment trust shares are not acceptable. Since the pounds 3,000 allowance is on top of the pounds 6,000 you can invest in a general PEP, you could invest your total annual PEP allowance of pounds 9,000 in one company's shares.

You can change this holding throughout the year. So if you bought pounds 3,000 of BP shares and later in that same tax year decided to sell these and instead buy pounds 3,000 of Shell shares, you could put these into the single- company PEP. What you cannot do is have more than one company's shares in this PEP.

You can open a new single-company PEP each year. Over a number of years this enables you to build up a portfolio of shares but, again, each PEP can only have the shares of one company in it.

The dangers of putting all your eggs in one basket is obvious. With a general PEP you can have several holdings so if one share price falls it is not disastrous. But as Justin Urquhart-Stewart, a director at Barclays Stockbrokers, said: "Single-company PEPs can be used as part of someone's portfolio. You may have all your eggs in one basket, but each year you can buy a new basket."

As with all PEPs, you have to invest through a PEP manager. Single-company plans can be self-select, corporate or managed.

A self-select single-company PEP allows you to choose the company in whose shares you want to invest. Charges are comparatively low as there is no fee for advice, only a dealing charge.

Not all single-company PEP managers will let you change your shares. Even if you are allowed to sell your shares and buy another company's shares, there usually will be a dealing charge and the choice of shares you can choose from may be limited to the FT-SE 100 index.

You should also check if your PEP manager will pass on to you any perks associated with your share holding. For example, P&O shares often entitle the shareholder to ferry discounts, but you may not be entitled to these if your PEP manager does not pass on the benefit.

Most single-company PEP managers are the stockbroking arms of the big banks. Annual fees are usually around 0.5 to 1 per cent. There also may be an exit charge, typically a fee of pounds 25.

Corporate PEPs offer an alternative to using a single-company PEP manager. More than 200 companies, including British Airways and British Aerospace, run corporate PEPs.

The company appoints a PEP manager, which administers the scheme for them. Charges are low - in some cases there are no fees at all. The main players in the corporate PEP market are the stockbroking arms of building societies, such as Bradford & Bingley and the Halifax, and Lloyds and Barclays.

q Chase de Vere Investments publishes a list of PEP schemes for pounds 12.95, telephone 0800 526091.