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HMRC internal manual

Insurance Policyholder Taxation Manual

Permitted property: collective investment schemes

Unit trusts

Units in an authorised unit trust are permitted property that may be selected without making the policy a Personal Portfolio Bond (PPB). A unit trust is authorised if the Financial Conduct Authority has made an order of authorisation under section 243 of the Financial Services and Markets Act 2000 (FSMA).

It is possible for an authorised unit trust to lose its authorisation. Where units in such a trust have been selected as property determining benefits under the policy, the link between the value of the units and the policy benefits must be broken to keep the policy outside the definition of a PPB. This should be done as soon as reasonably possible after the unit trust has lost its authorisation.

An agreement between the insurer and the policyholder, even if not in writing, to retain the link between the policy benefits and the units would be a variation of the terms of the policy to permit the selection of units in unauthorised unit trusts, causing it to become a PPB.

Open-ended investment companies (OEICs)

Shares held in an open-ended investment company, as defined in section 236 FSMA may also be selected without making the policy a PPB. The scope of the definition of OEIC is not restricted to UK companies and an OEIC may be located overseas.

Other collective investment schemes

The PPB legislation also allows interests in other collective investment schemes resident outside the UK to be selected if it is a unit trust scheme or an arrangement creating rights in the nature of co-ownership under the law of a territory outside the UK.

For this purpose, the PPB legislation follows the standard definition of collective investment scheme given in section 235 FSMA and the related secondary legislation (The Financial Services and Markets Act 2000 (Collective Investment Schemes) Order 2001, SI2001/1062).

If the investment vehicle does not fall within the definition of collective investment scheme then interests in it cannot be selected without making the policy a PPB. Thus, for instance, shares in a closed-ended foreign investment company would not be permitted property under this category, as such a company is not a collective investment scheme under the definition inFSMA and related order.

Exchange-traded funds

The PPB Regulations do not specifically refer to exchange-traded funds (ETFs) and it is necessary to look at the nature of the investment vehicle used to offer the ETF. If an interest in the investment vehicle used is permitted property then an interest in the exchange-traded fund may be selected without making the policy a PPB. So, for instance, if the ETF is offered through an OEIC then shares in it may be selected without causing the policy to be a PPB.

Options, warrants and other rights to acquire interests in schemes

An option, warrant or other right to acquire shares or units in a collective investment scheme is not property which can be selected without making the policy a PPB even if shares or units in the scheme themselves are permitted property. Neither are options, warrants and such like ‘interests in’ overseas collective investment schemes (for the purposes of property category 7 in ITTOIA05/S520).

Further reference and feedback IPTM1013