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HMRC internal manual

Insurance Policyholder Taxation Manual

From
HM Revenue & Customs
Updated
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Selection rules: example

Facts

The terms of a number of policies issued by an insurer give policyholders the abilityto select units in unit trusts based outside the UK to determine the policy benefits,provided that the unit trusts have a particular offshore investment manager.

The insurer publishes marketing material advertising the fact that unit trusts managed bythis particular manager are now available to be selected. The manager sets up a new unittrust based in the Isle of Man. It publishes a brochure advertising the opportunity toinvest in the unit trust. The brochure explains that the minimum investment in the unittrust is £100,000 and that the units may be held directly or via an insurance policy. Theunit trust proves popular, raising about £25million.

The insurer publishes a brochure and issues circulars to its policyholders in relation tothis specific unit trust, but only one of the insurer’s policyholders decides toselect the units to determine the policy benefits.

Interpretation

The opportunity to invest in unit trusts managed by the particular fund manager isclearly identified in marketing or other promotional literature published by the insurer.The opportunity is available generally to its customers and potential customers who haveor may take out a policy under whose terms they may select units in offshore unit truststhat have this company as an investment manager to determine the policy benefits.

This is the type of policy customers of the insurer commonly choose to take out. Thepolicyholder has no say in who else takes up the opportunity. The limitation toinvestments over £100,000 is objective and would not itself be contrary to the rule thatthe opportunity to select is offered to a class of policyholders.

The lengthy menu of investments that insurers offer could mean that there is only oneholder of a policy issued by a particular insurer who selects particular property todetermine the benefits under that policy. This would not itself make the policy a PPBbecause the test is the extent to which the ability to select particular property isavailable to potential policyholders of that insurer not the number of policyholders whoactually make the selection.

Further reference and feedback IPTM1013