IPTM7820 | Personal portfolio bonds (PPB): policies made before 17 March 1998: transitional period: position where policy is not varied before the time limit

The terms of a pre-17 March 1998 policy may not have been varied within the transitional periods described in IPTM7810 and IPTM7815. This might have been because:

• property or an index was actually selected since 5 April 1994 which was not within the categories of permitted property and indices listed in IPTM7795 so the transitional provision cannot apply, or

• the transitional provision could have applied but the insurer and policyholder failed to agree the necessary variation before the end of the transitional period.

Other action possible

In such cases, it is still open to the policyholder and insurer to agree to vary the terms of the policy so that it is outside the general definition of a PPB. This would require the removal of the policyholder’s ability to select property or indices other than that from the narrower categories permitted for policies made on or after 17 March 1998 - see IPTM7735.

The ability to select property, such as shares in FTSE companies, from the widercategories permitted for pre-17 March 1998 policies under the transitional provisions isnot, however, allowed without making the policy a PPB.

It would also require any link between policy benefits and any property or index outsidethe permitted categories to be broken, for instance by disposal of the offending property.

Consequences

This action will prevent the policy being a PPB, and from giving rise to PPB gains, from the end of the insurance year in which the changes are made. The policy will nevertheless be a PPB, potentially giving rise to PPB gains, for the earlier insurance years that ended in tax years 2000-01 onwards.

Where a policyholder returns to the UK to be resident for at least two years but fails to vary the policy within the transitional period described in IPTM7815, a PPB gain will potentially arise in the first tax year for which the policyholder is UK resident.

For example, if in the circumstances given in IPTM7815 the policyholder failed to agree the necessary variation by 26 May 2020 then the policy will be a PPB on the last day of the insurance year ended 26 May 2018. This falls in tax year 2018-19, the first in which the policyholder is UK resident. If the PPB gain calculation shows a gain for that insurance year then it will be taxable in 2018-19 and similarly if PPB gains arise for 2019-20 onwards. It is irrelevant that the policyholder could have varied the policy at any time up to 26 May 2020 to prevent the policy being a PPB. The fact is that policyholder did not, so the transitional provision does not apply.