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Your support makes all the difference.Investors who bought shares in the recent Railtrack privatisation will not all benefit from putting them in PEPs but it is something higher- rate taxpayers at least should consider.
The end of this week sees the end of a 42-day period in which investors are entitled to transfer new shares into PEPs free of charge.
The main plus of PEPs for most investors is that dividends become tax- free - hence the attraction for higher-rate taxpayers who otherwise face 40 per cent tax on them. If the shares should increase in price these profits are also tax-free.
But even with a free transfer, investors should not assume they will automatically benefit. PEPs also carry ongoing charges that are not being waived. These eat into the value of the tax perks and could even leave you worse off.
Railtrack will pay its first dividend of 13.75p net a share in October. The Share Centre, a cut-price Tring-based stockbroker, has calculated that all higher-rate taxpayers, even with the minimum 200 shares, could benefit from being in its PEP for this payment. For example, higher-rate taxpayers with 300 shares (a typical allocation) would be up nearly pounds 12 after the costs of the PEP. Over the longer term, the tax savings could amount to much more, given Railtrack's intention to give good dividend increases. A smaller second dividend planned for February, however, is only likely to yield sufficient tax savings to cover PEP costs at The Share Centre if you are a higher-rate taxpayer with at least 300 shares.
PEP charges vary, so investors should shop around, but a good place to start is the company you bought the Railtrack shares through. To meet the cost-free transfer deadline you will need to get your share certificate and/or written instructions to the PEP manager this week.
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