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HMRC internal manual

Insurance Policyholder Taxation Manual

HM Revenue & Customs
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Ability to select property: meaning

Meaning of ‘ability to select’ is wide

Under the PPB legislation, a policyholder’s ability to select property or an indexis defined to have a wide scope. It extends to circumstances where a policyholder has anysay, even indirectly, in the selection of the property or index.

In particular, a policyholder will be treated as having the ability to select property oran index if under the terms of the policy or contract, the index or property in questionmay be selected by any of the following:

  • the policyholder
  • a person connected with the policyholder
  • a person acting on behalf of the policyholder
  • a person acting on behalf of a person connected with the policyholder
  • the policyholder and a person connected with the policyholder, or
  • a person acting on behalf of both the policyholder and a person connected with the policyholder.

Where there is more than one policyholder, there will be an ‘ability toselect’ if any of the policyholders have the ability to selectproperty or an index.

Where the policyholder genuinely does not have the ability to select property or an index,even if that property or index is not within any of the permitted categories, the policyor contract will not be a PPB, although the presence of personal assets would test thisanalysis.

If, for instance, the insurer has complete discretion over the selection of the propertyor index determining the benefits then the policy would not be a PPB. But if thepolicyholder does have influence over the selection then the ‘ability to select’lies with the policyholder.

Where the policyholder is also an employee of a permitted fund such as a collectiveinvestment scheme or investment trust company – see IPTM7745 andIPTM7750 – and selects units or shares in that fund, thatin itself would not cause the policy to be a PPB. However, the property selectionconditions would still need to be met – see IPTM7780 onwards.

Variation of the terms of the policy

Even if the original terms of the policy provide only for the selection of propertywithin the permitted categories, if the policyholder subsequently selects other propertythen that will indicate that the terms of the policy have been varied to allow selectionof property wider than the permitted categories. Then the policy will be a PPB.

Options in a policy to select property

If a policyholder is entitled to exercise an option to select property or an indexdetermining the benefits under the policy then the policyholder does have the‘ability to select’ even if the option is not exercised. But if the insurer hasdiscretion to offer the policyholder the right to select the property or index, thepolicyholder will have no ability to select until this discretion has been exercised bythe insurer.

Similarly, if the terms of the policy allow the policyholder to request a change in itsterms to permit selection of property outside the scope of the permitted property, butsubject to the agreement of the insurer, the policyholder lacks the ability to selectuntil the insurer has agreed. A link to personal assets to determine policy benefits willindicate the existence of an ability to select.

Further reference and feedback IPTM1013