Personal portfolio bonds: amending the property categories
Updated 6 December 2017
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Who is likely to be affected
Individuals who hold life insurance policies allowing them to select the underlying assets, their wealth managers and insurance companies who provide such policies.
General description of the measure
The personal portfolio bond (PPB) legislation prevents an individual placing personal property within a life insurance policy to defer a tax charge on all income and gains arising from that property. The legislation defines any life insurance policy as a PPB if its terms and conditions allow property selection, unless the only property that can be selected is that which is specified in legislation. A measure was introduced in Finance (No. 2) Act 2017 by the government with a power, by regulations, to update the list of specified permitted property.
These regulations add three property categories to the list of permitted property
- Real Estate Investment Trusts
- Overseas Investment Trust Companies
- Authorised Contractual Schemes
Policy objective
This policy uses the power introduced in Finance Bill 2017 (published in September 2017) to add three property categories to the list of permitted property that can be selected by a policyholder without giving rise to an annual taxable gain under the PPB rules. These property types have been developed since the introduction of the PPB legislation, and cannot be manipulated to allow personal property to be introduced into the policy.
Background to the measure
At Budget 2016, the government announced its intention to review the property categories a policyholder may select without triggering the provisions of the PPB legislation. A consultation was held from 9 August to 3 October 2016, seeking views on current property categories and further property types that may be included. A response to the consultation was published on 5 December 2016 alongside draft regulations.
Detailed proposal
Operative date
This measure will have effect for all policies from 1 January 2018.
Current law
Current law is contained in sections 515 to 521 of Income Tax (Trading and Other Income) Act 2005.
Proposed revisions
These regulations update the table of property categories in Section 520 (2) of Income Tax (Trading and Other Income) Act 2005. The power to make these regulations was provided by the amendments to s520 (5) Income Tax (Trading and Other Income) Act 2005 introduced in Finance Bill 2017 (Published in September 2017).
The regulations make changes to the table, adding UK real estate investment trusts, overseas equivalents of investment trust companies and authorised contractual schemes. They also remove category 7(a) (an interest in a collective investment scheme constituted by a company resident outside the UK, other than an open-ended investment company).
By virtue of a technical deficiency, category 7(a) is incapable of containing any property, and the regulations remove this sub-category. The regulations are amending a category of property, not removing one and, for that reason, the regulations are made subject to negative, rather than affirmative, procedure.
Summary of impacts
Exchequer impact (£m)
| 2017 to 2018 | 2018 to 2019 | 2019 to 2020 | 2020 to 2021 | 2021 to 2022 | 2022 to 2023 |
|---|---|---|---|---|---|
| Negligible | Negligible | Negligible | Negligible | Negligible | Negligible |
This measure is expected to have a negligible impact on the Exchequer.
Economic impact
This measure is not expected to have any significant economic impacts.
Impact on individuals, households and families
This measure will impact individuals that hold life insurance policies that allow them to select the underlying assets. It may allow a wider selection of permitted property for those individuals. Impact on individuals and households is expected to be negligible. This measure is not expected to impact on family formation, stability or breakdown.
Equalities impacts
This measure will affect individuals within the protected equality groups that tend to be represented amongst those with above average income.
Impact on business including civil society organisations
This measure is expected to have a negligible impact on asset managers and life insurance companies. Those that choose to take advantage will incur one-off costs to familiarise themselves with the new property categories. Ongoing costs for applying these updates to the rules to individual client cases are expected to be negligible as they are comparable to those associated with existing arrangements. There is no impact on civil society organisations.
Operational impact (£m) (HM Revenue and Customs or other)
It is not anticipated that implementing this change will incur any additional costs or savings for HM Revenue and Customs, but we will keep that under review as the measure develops.
Other impacts
Other impacts have been considered and none have been identified.
Monitoring and evaluation
The changes made by the Regulations will be kept under review through communication with taxpayer groups affected by the measure.
Further advice
If you have any questions about this change, please contact Robby Wells on Telephone: 03000 530261 or email: robby.wells@hmrc.gsi.gov.uk.
Declaration
Mel Stride MP, Financial Secretary to the Treasury has read this tax information and impact note and is satisfied that, given the available evidence, it represents a reasonable view of the likely costs, benefits and impacts of the measure.