IPTM7805 - Personal portfolio bonds (PPB): policies made before 17 March 1998: selection of shares and securities listed on AIM or USM

Where a policy was made before 17 March 1998 a second category of shares or securities may be selected under the terms of the policy by the policyholder to determine the benefits under the policy without creating a PPB – see IPTM7795

These are shares and securities of a company dealt in on the Alternative Investment Market (AIM) or the Unlisted Securities Market (USM), provided the following two conditions are met:

• the holding in the company which the policyholder may select to determine the policy benefits must be limited to a maximum of 10% of the issued share capital of the company concerned; and
• the amount invested in the holding must not be permitted to exceed a maximum of 10% of the total premiums paid in respect of the policy.

These are intended to rule out the selection by the policyholder of personal assets such as shares in a family company.

The amount invested is calculated by reference to the cash paid by the insurer for the property. If, however, the holding is transferred to the insurer in satisfaction of any premium, it is the market value of any of the property at the date it is transferred to the insurance company that is brought into this 10% calculation.

Although the USM was discontinued in 1996 and replaced by AIM, the question of whether shares and securities that have been selected were listed on the USM may still be relevant. This is because the test described in IPTM7795 of whether a pre-17 March 1998 policy is a PPB looks at property selected, or capable of being selected, since 6 April 1994.

Shares and securities for this purpose include options, warrants or other rights to acquire shares and securities.

Examples

If (before 17 March 1998) under the terms of the policy the policyholder may select 25% of the issued share capital of a company dealt in on the AIM to determine the benefits under the policy, then the policy would be a PPB as the holding exceeds the maximum 10%.

Similarly, if the total amounts payable as premium under the policy are £100,000, and £50,000 is payable in cash and £50,000 may be satisfied by the policyholder transferring a 1% holding in an AIM company, that would also make the policy a PPB. The payment in cash of a £100,000 premium and the entitlement of the policyholder to select the shares of one AIM company worth £25,000 to determine the policy benefits would also make the policy a PPB.