IPTM7775 - Personal portfolio bonds (PPB): permitted indices: ITTOIA05/S518

The PPB legislation also allows for benefits under a policy to be determined by reference to certain indices selected by the policyholder without the policy being a PPB, provided the selection rules described in IPTM7780 to IPTM7790 are also met. The categories of permitted indices are:

• the UK retail price index and foreign equivalents
• published indices of prices of shares listed on a recognised stock exchange.

Retail price indices

The indices of retail prices that the policyholder may select under the terms of a policy are not limited to the UK retail prices index. Any general index of prices similar to the RPI that is published by the government of any foreign state or by any agent of such a government may be provided for selection.

Indices of prices of shares

An index of prices of shares that the policyholder may select under the terms of a policy to determine its benefits must be one whose value is published and the shares in question must be listed on a recognised stock exchange. For an index to be regarded as being ‘published’ its daily closing value must be published either in newspapers or through a freely available electronic news service.

The definition of a recognised stock exchange is at ITA07/S1005(1). The London Stock Exchange is a recognised stock exchange as are a number of other stock exchanges based in and outside the UK. A full list of recognised stock exchanges is given on the HMRC website.

Meaning of ‘shares’

The term ‘shares’ includes stock but does not include securities that are not shares or stock. An index of corporate bonds or interest-bearing securities such as UK gilts would not therefore be an index of prices of shares. A policy giving the policyholder the ability to select such an index would be a PPB.

Policy benefits determined by value of property that is linked to an index

There is a distinction between benefits under a policy being determined directly by reference to a specified index and benefits being determined by reference to the value of property that is linked to an index. In the latter case, it is the nature of the property selected which is the relevant factor in deciding whether the policy is a PPB, not the nature of the index.

So, for instance, if the policy benefits are determined by reference to the value of units selected in an authorised unit trust (permitted property under ITTOIA05/S520 – see IPTM7745) whose value follows an underlying index, this will not cause the policy to be a PPB even if the index is not in the categories of permitted indices.