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HMRC internal manual

Insurance Policyholder Taxation Manual

Personal portfolio bonds: meaning: property selection

A policy or contract is not a personal portfolio bond merely because its terms permit the selection of property as described at IPTM3610 if all of the property which may be selected:

  • falls within the following categories - property categories, and
  • meets either the general or class property selection conditions

 

Property Categories

The property categories are as follows:

  1. property appropriated by the insurer to an internal linked fund
  2. units in an authorised unit trust, see CTM48120 
  3. shares in an approved investment trust, see CTM47000 onwards, or an overseas equivalent (see below)
  4. shares in an open-ended investment company, see CTM48125 
  5. cash
  6. a life policy, life annuity or capital redemption policy, unless excluded 
  7. interests in collective investment schemes, see definition below
  8. shares in a UK Real Estate Investment Trust (REIT) or an overseas equivalent, see GREIT 1005 onwards
  9. an interest in an authorised contractual scheme.

 

General condition

Property meets this condition if, at the time when it may be selected, the opportunity to select property falling within the same category is available to

  • all policyholders of the insurer, or
  • persons acting on behalf of those policyholders

 

Class condition

Property meets this condition if, at the time when it may be selected, the opportunity to select property falling within the same category is available to

  • a particular class or classes of policyholders of the insurer
  • persons acting on behalf of the members of that class or those classes.

The meaning of class for this purpose is given at IPTM3630.

 

Definitions

A life policy, life annuity or capital redemption policy is ‘excluded’ if

  • the policy or contract is itself a personal portfolio bond
  • the value of any benefits under the policy or contract is determinable directly or indirectly by reference to a personal portfolio bond
  • a personal portfolio bond is property related to the policy or contract.

Cash includes sums in bank or building society accounts, but not cash that is acquired in order to realise a gain on its disposal.

An interest in collective investment schemes are units in non-UK unit trusts or any other arrangement that creates rights in the nature of co-ownership under the law of a territory outside the UK. More information can be found in IPTM7745.

An overseas equivalent of an approved investment trust for the purposes of the personal portfolio bonds legislation must meet the conditions shown in IPTM7750.

A REIT is described in the OECD Commentary to Article 10 of the Model Tax Convention as having the following broad characteristics:

  1. A widely held company, trust or contractual or fiduciary arrangement, that
  2. derives its income primarily from long-term investment in immovable property,
  3. distributes most of that income annually, and
  4. does not pay income tax on the income related to immovable property that is so distributed.

For an overseas REIT to be the equivalent of a UK-REIT it must, in addition to the above, meet the following conditions:

  • there must be provision in the law of the territory where the entity was resident which broadly corresponds to Part 12 CTA 2010, and
  • the entity must qualify for relief under those provisions similar to the relief that a company in the UK which qualified as a UK REIT would qualify for.

 

More detailed guidance, aimed largely at insurers and practitioners, is given at IPTM7700 onwards.

Further reference and feedback IPTM1013