PEPs and TESSAs: the tax-free schemes that came before ISAs

Personal Equity Plans and Tax-Exempt Special Savings Accounts were the tax-free savings schemes that came before the ISA. Both were closed to new money when ISAs were introduced on 6 April 1999, and PEPs were then formally brought inside the ISA rules from 6 April 2008, when existing tax-exempt PEPs were treated as stocks and shares ISAs¹.

That matters if you still hold one. A former PEP is not a stranded product from a bygone era: it is a stocks and shares ISA, and the money inside it remains free from UK Income Tax and Capital Gains Tax while it stays in the ISA². There is no form to complete, no deadline to meet and nothing you have to do to keep that treatment.

What you may want to look at is whether the account still suits you. A plan opened in the 1990s can carry charges and investment choices that a newer account would not, and moving it is a straightforward transfer rather than a sale and repurchase. This page explains what each scheme was, what the money became, and how to trace an account you have lost track of.

PEPs and TESSAs: the tax-free schemes that came before ISAs

A Personal Equity Plan was a wrapper you bought through a plan manager, and a TESSA was a fixed-term tax-free savings account offered by banks and building societies. Both existed to do the same job the ISA does now: shelter savings and investments from tax. ISAs were introduced on 6 April 1999, replacing the earlier Personal Equity Plans and TESSAs¹.

The two schemes were not identical in shape. A PEP held investments, which is why its successor is an investment account rather than a savings account. A TESSA was a savings product with a set term, closer in spirit to a fixed rate cash ISA. When the ISA arrived, the money in both was carried across rather than paid out, which is why accounts with those names survived on statements long after the schemes closed to new business.

The ISA that replaced them has since been reshaped several times. From 1 July 2014, all ISAs became New ISAs (NISAs) and the annual subscription limit was increased to £15,000, which can be split between cash and stocks and shares¹. That figure is a historical marker of how the product has changed, not the current allowance, which is set separately each tax year.

For anyone holding an old plan, the practical point is that the wrapper changed and the tax treatment did not. The money stayed invested, the tax shelter continued, and no action was required from the account holder at either transition.

PEPs now count as stocks and shares ISAs

From 6 April 2008, existing tax-exempt PEPs were treated as stocks and shares Individual Savings Accounts under the Individual Savings Account Regulations 1998¹. In plain terms, the account you knew as a PEP became an investment ISA, with the same tax advantages and the same rules as any other stocks and shares ISA.

A stocks and shares ISA is the type where the money you put in is invested on the stock markets⁴. That is the category a former PEP sits in, and it is a different animal from a cash ISA, which works like a tax-free savings account⁴. The distinction matters when you come to move the money, because the two types have different transfer options and different risks.

What a stocks and shares ISA can hold is broad. Company shares, unit trusts and investment funds, corporate bonds and government bonds are all eligible⁵, and a stocks and shares ISA lets you hold shares, funds and other investments as well as cash⁶. There are limits: peer-to-peer loans cannot be held in a stocks and shares ISA, though they can be held in an innovative finance ISA⁷.

If you are unsure which type of account an old plan is, the investments inside it are the clue. A plan holding funds or shares is an investment ISA by another name; a plan that was always a savings account with a fixed term is closer to a cash ISA.

What the change means for money still held in an old PEP

The headline is that nothing was lost. Money in an ISA remains free from UK Income Tax and Capital Gains Tax while you keep it in the ISA², and a former PEP counts as an ISA for that purpose. There is no tax bill waiting on a plan that has quietly sat untouched for years.

The things worth checking are practical rather than legal. A plan opened decades ago may hold investments chosen for a different era, and it may carry platform or management charges that a newer account would not. Neither is a reason to panic, but both are reasons to look at the paperwork and see what you are actually paying for.

There is also the question of what the money counts for outside tax. ISAs, PEPs and TESSAs are all listed among the investments taken into account when benefits are means tested, alongside National Savings accounts and certificates, income bonds, stocks, shares and unit trusts, and Premium Bonds⁸. A former PEP is not invisible to a means test simply because it is tax free.

If the account holder has died, the ISA does not simply disappear. A surviving spouse or civil partner can inherit an additional permitted subscription, an extra ISA allowance based on the value of the deceased's ISA, and that allowance can be transferred to another provider once, does not affect their own annual ISA allowance, and is fixed in value once used⁹. The practical steps after a death, including which organisations to notify, are set out in the government's guidance on reporting a death¹⁰.

Do I need to do anything with an old PEP?

No. The conversion to ISA status happened automatically, and there is no application, notification or deadline attached to it. If the plan is still with the same provider and you are happy with it, leaving it alone is a complete and valid answer.

If you do want to act, the options are the same ones that apply to any stocks and shares ISA. You can leave it where it is, move it to another provider by transfer, or change the investments held inside it without moving the account at all. Which of those makes sense depends on what the plan costs, what it holds and whether you want to manage it yourself.

One point that catches people out: transferring an ISA is not the same as withdrawing the money and paying it back in. A transfer keeps the tax wrapper intact and does not use up any of your annual ISA allowance. Withdrawing and reinvesting can, depending on the type of ISA and whether it is flexible, and it puts the money outside the wrapper in the meantime.

There is no charge-free window or special concession for old PEPs. They follow the ordinary ISA rules, which is the simplest way to think about them.

Can I transfer a former PEP to another ISA provider?

Yes. A former PEP is a stocks and shares ISA, and stocks and shares ISAs can be transferred to another provider. The mechanics are the same as for any other ISA transfer, and the first step is counter-intuitive: you contact the provider you want to move to, not the one you are leaving³.

That is the standard rule across the market. To transfer an ISA to a different provider, the new provider's transfer process is used³, and the guidance from providers is consistent that the new provider is contacted first to start it¹¹. The new provider then arranges the move with the old one.

A few conditions are worth knowing before you begin:

• Not every account accepts transfers in. ISA product terms and conditions confirm whether the account being moved to accepts ISA transfers from another provider¹².
• Existing ISAs from different providers can be transferred, covering both current and previous tax years' funds¹³.
• Each type of ISA can be transferred into the same type of ISA with another provider, so a stocks and shares ISA goes into a stocks and shares ISA¹⁴.
• If only part of an ISA is transferred, the funds may be replaceable with the original provider but not with the provider being transferred to¹⁵.
• Transfers to another ISA provider are not flexible withdrawals, so they do not create replacement allowance¹⁶.

The transfer itself can be done in cash or by moving the investments across as they are, depending on what the receiving provider supports¹⁷. If the old plan holds investments the new provider does not offer, a cash transfer is the usual outcome.

Tracing a lost PEP or TESSA and where to get help

Old plans are easy to lose track of. Providers merge, brands are retired, and paperwork from the 1990s does not survive house moves. If you think you had a PEP or TESSA but cannot find it, the route is to work backwards from what you do remember.

Start with any statements, tax documents or correspondence that name a provider, then approach that firm directly. If the firm has changed hands, the receiving business usually holds the records. If you cannot identify the provider at all, the free tracing services are the practical next step.

One limit is worth stating plainly, because it is a common misunderstanding. The Pensions Ombudsman cannot help with tracing a lost pension, and points people to the Pension Tracing Service on GOV.UK instead¹⁸. That service exists to find details of a person's personal or workplace pension¹⁰, so it is the right tool for pensions rather than for investment accounts, but it illustrates where the free help sits: government tracing services, not the ombudsman.

If the money was held in an account that has since failed, the compensation position depends on what it was. Money in accounts such as current and savings accounts, including cash ISAs, is covered by the Financial Services Compensation Scheme as a deposit¹⁹. Investment accounts are covered on a different basis, and the scheme's own guidance sets out which products fall under which limit.

If a provider has treated you badly rather than lost your money, the Financial Ombudsman Service handles complaints about ISAs, including the cash ISA and stocks and shares ISA variants⁴. That is a complaints route, not a tracing service, and it is free to use.

Where the protection stops

The tax shelter on a former PEP is robust: the money stays free of UK Income Tax and Capital Gains Tax while it remains in the ISA², and that does not depend on the provider or on you doing anything. What the shelter does not do is protect the value of the investments, insure the provider, or remove the account from a means test.

On provider failure, the split matters. Deposit accounts, including cash ISAs, are covered by the Financial Services Compensation Scheme as deposits¹⁹. Investment accounts sit under different rules, and the scheme publishes separate guidance on what is protected and to what level. If you hold a former PEP, it is worth knowing which side of that line your account falls on before you need to.

On complaints, the Financial Ombudsman Service can look at disputes about ISAs⁴. It is free, and it is the route to take if a provider has mishandled a transfer, mis-sold an investment or failed to act on your instructions.

On benefits, the account is visible. ISAs, PEPs and TESSAs are all counted among the investments considered in a means test⁸, so a large holding can affect entitlement even though the income and gains inside it are tax free.

And on the tax itself, the boundary is the wrapper. Money inside the ISA is sheltered; money taken out and not replaced is not. That is the whole of the rule, and it is why transfers rather than withdrawals are the usual way to move an old plan.