In general, a life insurance policy will be a personal portfolio bond (“PPB”) if the terms allow the policyholder to select some or all of the underlying assets. The exception to this is if all the assets which may be selected fall within certain listed permitted property categories, in which case the policy will not be a PPB.
Where a life insurance policy falls within the definition of a PPB, an annual tax charge is levied.
In March this year, the government announced its intention to review the permitted property categories which may be selected by life insurance policyholders to invest in without triggering the provisions of the PPB legislation.
The government has now announced its intention to legislate in Finance Bill 2017 to confer on itself the power to introduce regulations to update the list of permitted property categories. As well as enabling new asset categories to be added to the list of permitted property, this new power will allow the government to remove categories it deems no longer appropriate.
On the face of it, there is a risk that this will introduce unnecessary uncertainty into what constitutes a permitted property category from time to time. It is hoped that HMRC will use this new power first, to widen the categories generously and secondly, only in extraordinary circumstances.
A connected development in this area is in relation to the 5% rule. After a period of consultation, the government has decided not to legislate to change the rules to prevent disproportionate gains arising. Instead, the government will allow policyholders who “inadvertently generate a wholly disproportionate gain” to apply to HMRC to have the gain recalculated on a just and reasonable basis.
If you are affected by any of the above changes, please do contact us.