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HMRC internal manual

Insurance Policyholder Taxation Manual

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).