IPTM7715 - Personal portfolio bonds (PPB): ability to select property: meaning: ITTOIA05/S516(4)

Meaning of ‘ability to select’ is wide

Under the PPB legislation, a policyholder’s ability to select property or an index is defined to have a wide scope. It extends to circumstances where a policyholder has any say, even indirectly, in the selection of the property or index.

In particular, a policyholder will be treated as having the ability to select property or an index if under the terms of the policy or contract, the index or property in question may be selected by any of the following:

  • the policyholder
  • a person connected with the policyholder
  • a person acting on behalf of the policyholder
  • a person acting on behalf of a person connected with the policyholder
  • the policyholder and a person connected with the policyholder, or
  • a person acting on behalf of both the policyholder and a person connected with the policyholder.

Where there is more than one policyholder, there will be an ‘ability to select’ if any of the policyholders have the ability to select property or an index.

Where the policyholder genuinely does not have the ability to select property or an index, even if that property or index is not within any of the permitted categories, the policy or contract will not be a PPB, although the presence of personal assets would test this analysis.

If, for instance, the insurer has complete discretion over the selection of the property or index determining the benefits then the policy would not be a PPB. But if the policyholder has influence over the selection then the ‘ability to select’ lies with the policyholder.

Where the policyholder is also an employee of a permitted fund such as a collective investment scheme or investment trust company – see IPTM7745 and IPTM7750 – and selects units or shares in that fund, that in itself would not cause the policy to be a PPB. The selected property is permitted and the property selection conditions at ITTOIA05/S519 and S521 may still be met – see IPTM7780 onwards.

Variation of the terms of the policy

Even if the original terms of the policy provide only for the selection of property within the permitted categories, if the policyholder subsequently selects other property then that will indicate that the terms of the policy have been varied to allow selection of property wider than the permitted categories. Then the policy will be a PPB.

Options in a policy to select property

If a policyholder is entitled to exercise an option to select property or an index determining the benefits under the policy then the policyholder does have the ‘ability to select’ even if the option is not exercised. But if the insurer has discretion to offer the policyholder the right to select the property or index, the policyholder will have no ability to select until this discretion has been exercised by the insurer.

Similarly, if the terms of the policy allow the policyholder to request a change in its terms to permit selection of property outside the scope of the permitted property, but subject to the agreement of the insurer, the policyholder lacks the ability to select until the insurer has agreed. A link to personal assets to determine policy benefits will indicate the existence of an ability to select.