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PPB deemed gain & subsequent full surrender

Posted: Wed Jan 11, 2017 1:13 pm
by rr296
After an extended period overseas, I came back to the UK with an insurance bond which turned out to be a PPB (Personal Portfolio Bond). I remain resident to this date.

I only realized the consequences of that a few years later, at which point I got the PPB duly endorsed by the insurance company and ended up paying HMRC a decent amount of money in deemed PPB gain s that had accumulated over time (albeit partly reduced for time spent abroad via TAR ie time apportionment relief).

I continue to hold the bond to this date, now duly endorsed and therefore treated as a 'normal' collective offshore bond rather than a highly personalized vehicle.

It is my understanding that upon full surrender, the deemed PPB gains that I have paid so far effectively act as a "tax shield" in that they get added to the original premium paid in to the bond with the PPB gain effectively treated as part of the "PG" element in ITTOIA 2005 section 491(2) - which states

There is a gain if TB exceeds the sum of TD and PG where—
TB is the total benefit value of the policy or contract (see section 492),
TD is the total allowable deductions for the policy or contract (see section 494), and
PG is the total amount of gains treated as arising on calculation events occurring in relation to the policy or contractbefore the chargeable event in question.

I understand that section 491(2) was modified in the Finance Act 2012 to exclude any PPB deemed gains on which no UK income tax has been paid due to TAR, but I do not believe that change to be retroactively applicable to this bond (which has not been topped up or assigned since the original issuance date)

Therefore it is my understanding that the full amount of PPB deemed gains to date would act as a tax shield. That is of course assuming I am still resident in the UK on the date of surrender.

Worked examples in product literature produced by the likes of Old Mutual and Friends Providents would indicate the same

I asked my tax lawyers to confirm - just to avoid nasty surprises down the road on the "once bitten twice shy" principle - but they don't know and need to do a deep dive into the law. Before I spend money on that, I thought I'd see here if there is any PPB expertise...

Re: PPB deemed gain & subsequent full surrender

Posted: Wed Jan 11, 2017 10:56 pm
by maths
I agree with your comments. FA 2012 as you suggest shouldn't apply in your case.