PEP Accounts

[Frosties]

I currently hold a PEP account with Threadneedle who have informed me that as we are living in the US the US government do not allow us to hold a PEP account in the UK for tax purposes. We therefore need to sell the fund. I am thinking about putting this fund into a UK account for our son Matthew as one day we intend to return to the UK. Are there any UK regulations on this, i.e. how much can our son have in his account before any tax is due, are there any websites that will provide more information in laymans terms!

Any help/advise on this would be appreciated - thank you.

[Lee Young]

The tax benefits are perosnal to the PEP holders so if you transfer the funds you do not transfer the tax free nature of the income. You would in fact sinmply be transferring to your son the underlying invstments and the cash held.

[tax me less!]

You raise several issues:

1. There are no US government regulations barring a US resident from holding UK investments. However, Threadneedle are probably prohibited from selling products in the US because they are not regulated there. Consequently they may well wish to discourage investors who are US resident from holding investments to save themselves from filing with the SEC.

2. The product must be reported annually by you to the US Treasury on Form TDF 90-22.1, or you will face an automatic $10,000 fine.

3. A UK PEP is of course not tax exempt in the US. Therefore you will need to consider US Federal and State gift tax and capital gains taxes before selling or transferring to your son.

4. If you hold investments such as UK unit trusts or investment trusts in the PEP then these will be taxable under the Passive Foreign Investment Company rules on disposition, i.e. reported on Form 8621 and charged to US tax at 35% plus interest on any gain.