IPTM7705 - Personal portfolio bonds: introduction

In law, it is the insurer not the policyholder that owns the property that determines the benefits under a life policy. Where the policyholder has the ability to select the property that determines the policy benefits, the policyholder retains nearly all the advantages of direct personal ownership of that property. But because the property is held in the ‘envelope’ of a life insurance policy, the policyholder does not have to pay income tax on dividend and interest income arising from the investments nor capital gains tax on disposals when the investments underlying the policy are altered. Tax on any gains on the policy can also be deferred until the policy comes to an end.

Personal portfolio bond legislation

The personal portfolio bond (PPB) legislation is an anti-avoidance measure which imposes a yearly charge to tax on life insurance and capital redemption policies and life annuity contracts in some circumstances where the property that determines the benefits is able to be selected by the policyholder.

Where the chargeable person is an individual, the legislation has been rewritten under the Tax Law Rewrite Project and is now primary legislation in sections 515 to 526 of ITTOIA05.

Companies are no longer within the chargeable event gain rules from the start of the first accounting period of the company to begin on or after 1 April 2008 - the ‘company’s start date’ - and instead the loan relationship rules apply - IPTM3900 onwards.

The rules as they apply to companies before the start date remain in the secondary legislation in The Personal Portfolio Bonds (Tax) Regulations 1999, or ‘PPB Regulations’ (SI1999/1029).

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PPB Guidance

After the PPB Regulations were made, the ‘Personal Portfolio Bond Guidance Notes for Insurers and Practitioners’ was published to help explain the application of the regulations. The material in IPTM7710 onwards is an up-date of the PPB Guidance Notes, which can now be regarded as superseded by IPTM.

Unless otherwise stated, the guidance in IPTM7710 onwards is based on the PPB legislation in ITTOIA05 rather than the PPB Regulations, that is, it assumes that the person liable is an individual.

Although the guidance in IPTM7710 onwards mainly refers to ‘policies’ and ‘policyholders’ it should be read as applying not only to life insurance policies, but also to life annuity contracts and capital redemption policies, which are also within the scope of the PPB legislation.

HMRC staff may contact CT&VAT (Technical) Insurance Group - see ‘Technical Help’ link on left hand bar - if they have a query on PPBs which is not covered in the guidance.