Historic Schemes

May 21, 2019

Historic Schemes

Personal Equity Plans (PEPs) – historic

In the 1986 Budget, the Conservative Government introduced Personal Equity Plans (PEPs) with the principle aim of expanding individual share ownership and encouraging investment in UK industry. The plans primarily accepted cash subscriptions which were invested in stocks and shares in accordance with regulations that were varied from time to time. All income and capital gains realised from the investments were tax free, so long as they remained within the PEP environment.

In 1990, the tax-free savings base was broadened with the introduction of Tax-Exempt Special Savings Accounts (TESSAs) for the investment of cash into TESSA designated deposit or share accounts with a bank or building society etc.

In his Budget speech in July 1997, the Chancellor of the Exchequer, Gordon Brown, announced that the new Labour Government would be developing new Individual Savings Accounts (ISAs) which would build upon the experience of TESSAs and PEPs and encourage people, through tax relief, to raise the level of their long-term savings. The new scheme was to have particular emphasis on encouraging those on low incomes to save, and was to be in place for the 1999/2000 tax year.

The necessary Statutory Instruments enabling the regulations to be implemented were laid before Parliament for approval in July 1998 and resulted in the Individual Savings Account Regulations 1998.

At the same time, legislation was introduced to prevent further subscriptions to PEPs or the opening of any new TESSAs after 5 April 1999. PEPs existing at that date continued to operate under the PEP Regulations unless the investor closed the plan or died. Although PEPs were no longer open to new subscriptions, they continued to be managed under the PEP Regulations until 5 April 2008.

As part of a series of changes implemented from 6 April 2008, PEPs were automatically reclassified as Stocks and Shares ISAs from that date.
(PEP Regulations were effectively repealed from 2008/09)

Tax Exempt Special Savings Accounts (TESSAs) – historic

Savers could deposit a Maximum of £9,000 over the five-year term of a TESSA. In return for not withdrawing any of their capital during the five years, savers were eligible to receive gross interest under the scheme.

TESSAs taken out in the early years could be rolled over into a follow-up TESSA (into which further deposits could only be made to the extent that the overall £9,000 limit had not already been reached). Again, in return for not withdrawing any of their capital during this second five years, savers were eligible to receive gross interest.

To coincide with the launch of ISAs, no new TESSAs (or follow-on TESSAs) could be opened after 5 April 1999. TESSAs opened on or before that date continued to operate under TESSA Regulations until they were closed or matured.

The ISA Regulations made provision for the capital from a matured TESSA, which had matured after 5 January 1999, to be subscribed to a cash Mini ISA, the cash component of a Maxi ISA, or to a TESSA only ISA, within 6 months of the TESSA maturity date. Although only those entitled to subscribe to an ISA at the time could do this, the amount subscribed (typically £9,000) did not count towards the annual ISA subscription limits.

The last TESSA matured on 5 April 2004 so it has not been possible to transfer TESSA capital into an ISA since 5 October 2004.

It should be noted that, where TESSA capital was subscribed to a TESSA-only ISA, this classification only remained until the end of that tax year after which the ISA was simply a cash ISA and, as such could be combined with or transferred to any other cash ISA held by the investor.

There has been no such thing as a TESSA-only ISA since 6 April 2005. (However a number of cash ISA products aimed at ex-TESSA savers are marketed with product names such as TESSA ISA etc.)