IPTM3600 - Personal portfolio bonds: background: ITTOIA05/S515

The general regime for charging gains on life insurance policies, life annuity contracts and capital redemption policies, referred to as the chargeable event regime, postpones the tax on underlying economic gains until the policy or contract comes to an end.

The personal portfolio bond (PPB) rules are anti-avoidance provisions aimed at preventing the placement of personal assets within the chargeable event regime to benefit from postponement of tax. The rules apply where the property that determines the benefits under the policy or contract is personal to the holder or beneficiary under the contract in a way that goes beyond the usual choices offered, commonly described as ‘managed fund’, ‘international fund’ and similar.

One example of this is a policy where benefits are determined by reference to shares in the policyholder’s private trading company, which he has transferred to the insurer.

The PPB regime applies an annual charge on the policyholder. The rules apply to a policy or contract that is a personal portfolio bond at the end of an ‘insurance year’, unless this is the ‘final insurance year’ – these terms are explained at IPTM3505. The calculation made to determine whether a gain arises and, if so, its amount is in addition to any other calculation required under the chargeable event regime.