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HMRC internal manual

Insurance Policyholder Taxation Manual

Policies made before 17 March 1998: selection of shares and securities listed on AIM or USM

IPTM7795 notes that where a policy was made before 17 March1998 a further category of shares or securities may be selected under the terms of thepolicy by the policyholder to determine the benefits under the policy.

These are shares and securities of a company dealt in on the Alternative Investment Market(AIM) or the Unlisted Securities Market (USM), provided the following two conditions aremet

  • the holding in the company which the policyholder may select to determine the policy benefits must be limited to a maximum of 10% of the issued share capital of the company concerned; and
  • the amount invested in the holding must not be permitted to exceed a maximum of 10% of the total premiums paid in respect of the policy.

These are intended to rule out the selection by the policyholder of personal assetssuch as shares in a family company.

The amount invested is calculated by reference to the cash paid by the insurer for theproperty. If, however, the holding is transferred to the insurer in satisfaction of anypremium, it is the market value of any of the property at the date it is transferred tothe insurance company that is brought into this 10% calculation.

Although the USM was discontinued in 1996 and replaced by AIM, the question of whethershares and securities that have been selected were listed on the USM may still berelevant. This is because the test described in IPTM7795 ofwhether a pre-17 March 1998 policy is a PPB looks at property selected, or capable ofbeing selected, since 6 April 1994.

Shares and securities for this purpose include options, warrants or other rights toacquire shares and securities.


If under the terms of the policy, the policyholder may select 25% of the issued sharecapital of a company dealt in on the AIM to determine the benefits under the policy, thenthe policy would be a PPB.

Similarly, if the total amounts payable as premium under the policy are £100,000, and£50,000 is payable in cash and £50,000 may be satisfied by the policyholder transferringa 1% holding in an AIM company, that would also make the policy a PPB. The payment in cashof a £100,000 premium and the entitlement of the policyholder to select the shares of oneAIM company worth £25,000 to determine the policy benefits would also make the policy aPPB.

Further reference and feedback IPTM1013