The Taxation of Personal Portfolio Bonds for UK Residents

If you’re planning to move to the UK, it’s essential to review your investments, particularly if you hold a Personal Portfolio Bond (PPB).
While PPBs are popular among international investors, they can lead to significant tax implications when moving to the UK if they hold certain assets.

Understanding the Issue:

• What is a PPB? A personal portfolio bond (PPB) is a life insurance or capital redemption policy that allows investors to choose some or all of the underlying assets.
• The Benefits of a PPB? PPBs can provide benefits for wealth planning based on the client’s tax residency. They might be included in strategies for managing large capital or income gains, or for planning across generations and different countries. In some cases, the special treatment of PPBs offers advantages over directly holding assets or using an offshore trust. Personal Portfolio Bonds are a valuable and often overlooked resource in financial planning for high-net-worth individuals (HNWIs).
• HMRC’s Stance: HM Revenue & Customs (HMRC) classifies PPBs holding structured notes, direct shares or other private assets as ‘highly personalised’. Upon moving to the UK, if you hold such a bond, HMRC may impose a tax charge on the first policy anniversary after your return.
• What are Private Assets? Private assets are those deemed ‘personal’ to the policyholder. Examples include land and buildings, intellectual property, and direct shares.

Potential Tax Consequences:

• Deemed Gains: HMRC assumes a 15% annual gain on your bond’s value since inception, regardless of actual performance.
• Tax Rates: The assumed gain is taxed as income. For higher-rate taxpayers, this means a 40% tax charge, potentially increasing to 45% if it pushes you into the additional rate bracket.

Permitted Property Categories:

A policy won’t be classified as a PPB if the assets are all included in the Permitted Property categories:

      • Property appropriated by the insurer to an internal linked fund;
• Units in an authorised unit trust;
• Shares in an approved investment trust, or an overseas equivalent;
• Shares in an open-ended investment company (OEIC);
• Cash (but not acquired for speculative purposes);
• Shares in a UK Real Estate Investment Trust (REIT) or an overseas equivalent
• An interest in an authorised contractual scheme;
• Interests in collective investment schemes, which are units in non-UK unit trusts
or any other arrangement that creates rights in the nature of co-ownership under the law of a territory outside of the UK;

Assets such as structured notes, unauthorised investment trusts and equities are not within the permitted categories.

Steps to Mitigate Tax Liabilities:

1. Review Your Investments: Assess whether your PPB holds ‘highly personalised’ assets.
2. Seek Professional Advice: Consult with a financial adviser experienced in UK finances to determine the best course of action.
3. Consider Restructuring: Options may include altering your bond’s holdings to comply with UK regulations.

Navigating the complexities of UK tax regulations upon your return can be challenging. The experts at Oreana Private Wealth are here to assist you in reviewing and optimising your investments to ensure a smooth transition. Contact us today to schedule a consultation and safeguard your financial future.

Disclaimer:

No representation, warranty (express or implied) is given or made as to its accuracy, reliability or to the completeness of the information presented in this article, which is drawn from public information and may contain material provided by third parties derived from sources believed to be accurate as at the issue date. The information contained in this article is current as at the date of publication but is subject to change without notice. While all care has been taken in the preparation of this article, Oreana assumes no obligation to update this article following publication.