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HMRC internal manual

Insurance Policyholder Taxation Manual

Personal portfolio bonds: background

The general regime for charging gains on life insurance policies, life annuity contracts and capital redemption policies, referred to as the chargeable event regime, enables persons who purchase these contracts as investments in general to postpone tax on underlying economic gains until the policy or contract comes to an end. By which time their circumstances may have changed.

The personal portfolio bond rules provide a stricter regime 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 personal portfolio bond regime is founded on the principle of an annual charge. 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.

The following paragraphs broadly adopt the approach of the personal portfolio bond legislation at ITTOIA05/S515 onwards. Practical guidance based largely on the former Personal Portfolio Bond guidance notes is available at IPTM7705 onwards.

Further reference and feedback IPTM1013