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Introduction to ISA

11. How do PEPs and TESSAs affect an ISA?

11. How do PEPs and TESSAs affect an ISA?

The simple answer is not at all. The ISA replaced the PEP from 6 April 1999 and all PEPs in existence at that date can remain intact alongside any ISAs taken out in subsequent years.

Single company PEPs can be amalgamated with general PEPs since 6 April 2001 (ie no longer restricted to an investment in one company’s shares) but otherwise the PEP rules have not been materially changed.

However investors with substantial PEP portfolios should be advised to treat their whole PEP and ISA holdings as one tax-free portfolio. Regular reviews of all the investments should be made to ensure the combined asset allocation (for example, between bonds, shares and cash) is what is required as time progresses.

Proceeds from a maturing TESSA can be rolled over into a TESSA-only ISA without affecting your ISA entitlement for the year and you can transfer the capital, but not the interest, into a cash-only MAXI or MINI ISA.

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