IPTM7735 - Personal portfolio bonds (PPB): permitted property and indices: introduction: ITTOIA05/S518 and S520

A policyholder’s ‘ability to select’ property or an index determining the benefits under the policy or contract will not necessarily cause the policy or contract to be a PPB if the property or index falls within certain categories defined in the PPB legislation. The legislation identifies categories of permitted property and indices that, by their nature, are not ‘personal’ to the policyholder.

Where the terms of the policy or contract restrict the selection of property and indices to these categories, the policy would not be a PPB provided the selection rules – see IPTM7780 to IPTM7790.

Categories of permitted property and indices

The categories of permitted property are listed in ITTOIA05/S520 and in IPTM3640. Permitted indices are listed in ITTOIA05/S518 and in IPTM3630. IPTM7740 to IPTM7775 explain more about the various categories of permitted property and indices.

The rules are slightly different for policies and contracts taken out before 17 March 1998- see IPTM7795.

Property and indices that cease to be permitted

Property or an index that was permitted at the time it was selected may, for some reason, subsequently cease to be permitted. This might, for instance, be because the property is shares or units in an investment trust company or unit trust that was previously authorised but has now had authorisation removed.

If this happens, the policy will not be treated as a PPB if the link to the property is removed as soon as is reasonably possible and replaced with a link to property or an index that is permitted. But if the link is retained then the policy will become a PPB.

Property and indices for a policy that is varied to cease being a PPB

Where the terms of a policy are varied in order to take it outside the definition of a PPB, all the property held that is not permitted property of the type listed in IPTM3640 has to be disposed of. It is not sufficient for the policy terms to be changed for future selections of property.

The retention of an existing selection for determining the value of benefits is just as much evidence of an ability to select as is an ability to make future changes to the property that determines the policy benefits.

Similarly, if the benefits are linked to an index that is not of a type permitted by IPTM3630 then that link must be broken. It is not sufficient simply to change the terms for future selections of indices whilst retaining existing links to indices which are not permitted.