The UK government had introduced PEPs as a way for people to invest in stocks and shares in a tax-free manner. However, since the introduction of Individual Savings Account (ISAs) in April of 1999, PEPs have been replaced with stocks and shares ISA. No further contributions or new PEPs can be established since that date. However, you can withdraw your money at any time.
For those that have existing PEPs, these will continue to be valid, although you will not be able to make any additional contributions. You can leave your PEP as is, or convert it to a stocks and shares ISA. In fact, your PEP is now subject to the same rules and regulations as the stocks and shares ISA.
PEPs used to be divided into two categories: single company and general PEP. This division has now been eliminated, as stocks and shares ISAs do not make this distinction. You can now invest your PEP funds in any listed company, as under the stocks and shares ISA rules. Also, you have more flexibility if you want to transfer your PEP to another account manager. Previously, you had to transfer the whole amount, now you can divide your PEP into different accounts and transfer only one portion to another manager, if you want.
The underlying characteristic of the PEP remains the same. All capital gains, bonuses and profits in the PEP will be tax-free. By withdrawing money, you will not lose this tax-free status or be liable for capital gains tax. This is also true, if you decide to close your PEP and withdraw your entire investment.
If you die, the PEP will end on the day of your death. Your investment will be tax-free, as before, however your beneficiaries may be liable for inheritance tax, as the PEP is considered as part of your estate. Your account manager can either sell all the investments in your PEP and transfer the cash amount to the beneficiaries or in some cases, the account manager may be able to transfer the stocks and shares themselves to the beneficiary.