IPTM7785 | Personal portfolio bonds (PPB): selection rules: class of policyholders: ITTOIA05/S519 and S521

Even if the terms of a policy restrict a policyholder’s ability to select property and indices to those in the permitted categories, there are certain selection rules on the availability and marketing of investment opportunities that have to be satisfied in order for the policy to escape being a PPB.

To escape being a PPB, where the permitted categories are not available to all policyholders of the insurer – see IPTM7780 – the property or index must be available for selection to a ‘class’ of policyholders.

Subject to certain conditions, a class of policyholders means a number of policyholders to whom the opportunity is given to select the property. In practice, this includes prospective policyholders.

The insurer alone must determine the composition of the class. One person cannot constitute a ‘class’. The other conditions for a number of policyholders to represent a ‘class’ are as follows.

Opportunity to select is identified in marketing material

The first condition is that the opportunity to select the property or index is clearly identified in marketing or other promotional literature that the insurer has published. The marketing material must have made the opportunity available to potential policyholders at large. It is not necessary to spell out in detail in the marketing material all the possible fund links, provided it is made clear that the opportunities are available.

The marketing material should also be clear that the property or index is available for selection by all policyholders in the class for the whole of the period for which it is available.

Opportunity is not limited to connected persons

The second condition is that the insurer does not limit the opportunity solely to persons who are connected with each other. The meaning of ‘connected persons’ is given by the definition in ITA07/S993. Details are given at CG14580 onwards, which refers to the similar definition at TCGA92/S286.

It is not necessary for two or more unconnected policyholders actually to select a particular property so long as the class of policyholder to whom the insurer makes available the opportunity does not consist solely of connected policyholders.

The opportunity offered to the class may be to select from a wide variety of categories of permitted property, such as units in various unit trusts. If so, it is not necessary for every policyholder to select the same mix of investments, so long as it is open to each policyholder to select the same mix as any other policyholder, even if in practice each policyholder selects a different mix.