IPTM7705 - Personal portfolio bonds (PPB): 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. Without the PPB legislation, because the property is held in the ‘envelope’ of a life insurance policy, the policyholder would 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 would be deferred until the policy comes to an end.

PPB legislation

The 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 policyholder is able to select the property that determines the benefits payable on those policies/contracts.

Where the chargeable person is an individual, the relevant legislation is contained in ITTOIA05/S515 to S526.

Where the chargeable person is a company, the loan relationship rules apply from the start of the first accounting period of the company to begin on or after 1 April 2008 - IPTM3900 onwards.

The rules as they apply to companies before 1 April 2008 are contained in The Personal Portfolio Bonds (Tax) Regulations 1999, or ‘PPB Regulations’ (SI 1999/1029).

PPB Guidance

Although the guidance in IPTM7710 onwards mainly refers to ‘policies’ and ‘policyholders’ it should be read as applying not only to life insurance policies, but also to life annuity contracts and capital redemption policies, which are also within the scope of the PPB legislation.

HMRC staff may contact BAI Financial Services Team (Insurance) if they have a query on PPBs which is not covered in the guidance.