IPTM7710 - Personal portfolio bonds (PPB): scope and outline of the PPB legislation

Scope

The PPB legislation applies to life insurance policies, life annuity contracts and capital redemption policies that are within the scope of the chargeable event regime in ITTOIA05/PT4/CH9.

It does not apply to policies that are excluded from the chargeable event regime, such as policies issued in connection with most pension schemes and policies taken out before 19 March 1968 and not subsequently varied so as to extend the term or increase the benefits.

The PPB legislation can apply to qualifying life policies.

Outline of the legislation

The legislation imposes a yearly charge on policies and contracts that come within the definition of a PPB. It does this by treating a chargeable event gain as arising on the last day of each ‘insurance year’, other than the final insurance year – see IPTM3505 for meaning of insurance year. This annual PPB gain is deemed as arising on a chargeable event, called a ‘personal portfolio bond event’ in ITTOIA05. The method of calculating the gain is described at IPTM3650 and an example is given at IPTM3660.

The PPB legislation only applies to policies or contracts under whose terms:

• some or all of the benefits are determined by reference in some way to an index or property of any description, and
• some or all of that property or the index may be selected by the policyholder, or somebody connected with the policyholder or acting on their behalf

except where the index or property falls within certain narrowly-defined categories (listed in IPTM3630 and IPTM3640). There is guidance on permitted property and indices at IPTM7735 to IPTM7775.

Even where the index or property is within these categories, selection rules must also be satisfied whereby the opportunity to invest in policies linked to the property or index must be made available and marketed by the insurer to a class of potential investors – see IPTM7780 to IPTM7790.

It is important to note that a critical factor in determining whether a policy is a PPB is the scope of a policyholder’s ability to select a property or index under the terms of the policy, rather than what in practice is selected – see IPTM7715 to IPTM7730.

The test of whether a policy is a PPB is not limited to the terms of the policy at inception but is an ongoing test. Even if a policy was not a PPB when it was taken out, it could subsequently become a PPB through a change in its terms. The reverse situation could also apply if the policy was originally a PPB but its terms were varied so that it ceased to be a PPB.

The annual PPB gain only arises if a policy or contract is a PPB on the last day of the related insurance year.

Date from which the PPB rules apply

The PPB legislation applies for insurance years ending on or after 6 April 2000.