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Investment flexibility · What a UK policy may hold

What an offshore policy can invest in for a UK resident

One policy can hold the insurer's own funds, UK and overseas collective funds, investment trusts, REITs and cash, and you can move between them without a chargeable event. You can also hand the choices to a manager the insurer appoints. There is one hard limit. If you, or someone acting for you, can pick assets outside those categories, UK law taxes a deemed gain every year.

Hypothetical £5,000,000 policy, 10 years, 45%

£0

tax while the policy holds permitted funds and grows at 5% a year; £1.4m becomes due only when it is surrendered in year 10

£5.67m

tax paid in years 1 to 9 if the same policy is a personal portfolio bond: 45% on £12.6m of deemed gains, with no cash paid out

Deemed gain of 15% a year on premiums plus earlier deemed gains (ITTOIA 2005 s.522; HS321). Change every figure in the calculator below.

By Eldar Edmond Grady, CEO, PPLI.com. Research checked 23 September 2026.

UK law for the tax year 2026/27, for a UK-resident individual who owns the policy personally.

In brief

Wide choice, one firm line

A portfolio of your own

A portfolio held directly can own anything. Every change is a disposal: selling one fund to buy another, changing manager or rebalancing realises gains taxed at 18 or 24% above £3,000 a year, and the income is taxed as it arises.

Inside a policy

You choose among the insurer's internal funds, authorised and other collective funds, investment trusts, REITs and cash, and switch between them inside the policy. A switch is not a chargeable event. Or the insurer appoints a manager and you set only the risk level.

The line

If you, or someone acting for you, can select hand-picked shares, your family company or a property, or a manager follows your instructions, the policy is a personal portfolio bond. HMRC then taxes a deemed gain of 15% a year on the premiums and earlier deemed gains, whether or not the policy grew.

Six decisions an investor makes

What changes when the same decision is made inside a policy that follows the UK rules. Two of the six are things a UK resident's policy cannot do.

You rebalance from equities to bonds

Held directly

Selling the equity funds is a disposal. Gains above the £3,000 annual exempt amount are taxed at 18 or 24% in that tax year.

Inside the policy

Switching between funds inside the policy is not one of the chargeable events in ITTOIA 2005 s.484. Nothing is taxed and nothing is reported as a gain that year.

You change fund manager

Held directly

Selling the old manager's funds to buy the new manager's realises every gain built up so far.

Inside the policy

Moving to another fund on the insurer's list is a switch. Moving the whole policy to a different insurer is not: that means surrendering this policy, which is a chargeable event.

You want someone else to run it

Held directly

You appoint a discretionary manager. Each sale the manager makes is your disposal for CGT.

Inside the policy

Choose one of the insurer's internal funds by risk level, or ask the insurer to appoint an investment adviser who acts as the insurer's agent. HMRC says neither is normally a personal portfolio bond (IPTM7720; IPTM7725).

Your bond fund pays out every quarter

Held directly

The income is taxed each year at your marginal rate, up to 45% on interest.

Inside the policy

The income is reinvested gross and taxed only as part of the gain when a chargeable event comes, at up to 45% (47% on savings income from 6 April 2027).

Not possible

Your own manager follows your ideas

Held directly

Perfectly normal. Every trade is taxed as it happens.

Inside the policy

If the manager is in effect a conduit for your instructions, the policy is a personal portfolio bond: HMRC says the rules "cannot be avoided simply by interposing an investment adviser or broker" (IPTM7730). A deemed gain of 15% a year follows.

Not possible

You want the family company or a flat in London inside the policy

Held directly

You hold them directly. There is CGT when you sell, and no CGT on death.

Inside the policy

Private company shares and property picked for you fall outside the permitted categories in s.520. If the policy lets you select them, it is a personal portfolio bond from the start.

How the switch rules work in practice, including what happens when you replace the manager or the insurer, is in switching funds, managers or insurer inside a UK-taxed policy. How the gain is taxed when you do cash in is on the page on tax efficiency.

What the 15% charge costs: year by year

Put in a premium, a period and your rate. The table shows the deemed gain the law would charge each year if the policy were a personal portfolio bond, the tax on it, and what a policy that follows the rules pays over the same years: nothing until you cash in.

Try it

One premium, two outcomes

Premium paidIn pounds. Hypothetical

Years until you surrenderDeemed gains arise at the end of each insurance year except the final one

Your income tax rate (%)45 for an additional rate taxpayer in 2026/27. The deemed gain is taxed as savings income, so 47 from 6 April 2027

Real growth of the investments a year (%)Only used for the compliant policy and to compare real growth with deemed gains

Tax on deemed gains before you surrender

£5,665,222

Tax on deemed gains in years 1 to 9, paid each year from money outside the policy, because the policy pays out nothing. Year 1 alone: £337,500.

Tax in a compliant policy

£1,415,013

Tax in a compliant policy: nothing until you surrender in year 10, then 45% of the real gain of £3,144,473, before any top-slicing relief.

Total deemed gains charged	£12,589,381
Real growth over the period	£3,144,473
Deemed gains that never happened	£9,444,908
At surrender, real gain less deemed gains	A shortfall of £9,444,908: no tax at surrender. Deficiency relief is limited, gives no relief against income taxed at 45% and may not be available at all for a shortfall created by deemed gains
Total tax if it is a personal portfolio bond	£5,665,222

Year	A + B	Deemed gain (15%)	Tax that year	Tax so far	Compliant policy: tax that year	Real value
1	£5,000,000	£750,000	£337,500	£337,500	£0	£5,250,000
2	£5,750,000	£862,500	£388,125	£725,625	£0	£5,512,500
3	£6,612,500	£991,875	£446,344	£1,171,969	£0	£5,788,125
4	£7,604,375	£1,140,656	£513,295	£1,685,264	£0	£6,077,531
5	£8,745,031	£1,311,755	£590,290	£2,275,554	£0	£6,381,408
6	£10,056,786	£1,508,518	£678,833	£2,954,387	£0	£6,700,478
7	£11,565,304	£1,734,796	£780,658	£3,735,045	£0	£7,035,502
8	£13,300,099	£1,995,015	£897,757	£4,632,801	£0	£7,387,277
9	£15,295,114	£2,294,267	£1,032,420	£5,665,222	£0	£7,756,641
10	Final year: no deemed gain. On surrender the earlier deemed gains of £12,589,381 are deducted from the real gain of £3,144,473 (s.491, PG)				£1,415,013 at surrender	£8,144,473

The formula

Deemed gain at the end of each insurance year except the last = 15% x (A + B - C)
  A = premiums paid to date
  B = deemed gains in earlier years
  C = earlier part-surrender gains (none in this model)
Tax that year = deemed gain x your rate  (no top-slicing relief, no basic-rate credit)
At surrender: gain = value - premiums - earlier deemed gains (s.491, "PG")
Compliant policy: no tax each year; at surrender, (value - premium) x your rate

With no withdrawals, B compounds: 15% of £5,000,000 is £750,000 in year one, 15% of £5,750,000 is £862,500 in year two, and by year nine the deemed gain is over £2.29m. The deemed gains are deducted when the final gain is worked out on surrender (s.491), so if the investments did well some of the tax is only paid early. But at any ordinary rate of return the deemed gains run far ahead of real growth. You pay tax on money the policy never made, out of money you hold elsewhere, and deficiency relief on the shortfall is limited: it gives no relief against income taxed at 45%, and it may not be available at all for a shortfall created by deemed gains (IPTM3860; HS321). The model ignores that relief.

Would this make it a personal portfolio bond?

Eight common situations. Tap one to see the answer and the HMRC paragraph behind it; tap it again to see all eight. The test is not whether the investments are sensible but who can choose them.

Investor control check

Who is choosing?

Your situation

I choose from the insurer's list of 200 authorised funds, the same list every policyholder seesI pick a risk level and the insurer's internal fund does the restThe insurer appoints an investment adviser, and I cannot pick individual assetsMy own manager buys the stocks I suggestThe mandate names the five shares the manager may buyThe policy lets me pick any listed share, but I never use the optionI want shares in my family company, or a flat, inside the policyThe insurer builds a fund range just for me, based on my preferences

Showing all eight. Tap a scenario to see only that answer.

I choose from the insurer's list of 200 authorised funds, the same list every policyholder sees Not a PPB

Answer

Not a personal portfolio bond. Authorised unit trusts, OEICs and other collective investment schemes are permitted property, and the choice is open to all the insurer's policyholders.

HMRC and the statute

ITTOIA 2005 s.520 and s.521 (general condition); IPTM7780: limits must be "objective and ... not based on personal or individual criteria".

I pick a risk level and the insurer's internal fund does the rest Not a PPB

Answer

Not a personal portfolio bond. Units in an insurer's internal linked fund are not property for these rules; the insurer or its appointed manager selects the investments.

HMRC and the statute

IPTM7720; ITTOIA 2005 s.520 (property appropriated to an internal linked fund).

The insurer appoints an investment adviser, and I cannot pick individual assets Not a PPB

Answer

Not normally a personal portfolio bond. The adviser acts as the insurer's agent under the agreement between them. The position changes if your objectives are so narrow that you are really choosing.

HMRC and the statute

IPTM7725: "A policy written in these terms would not in general be a PPB"; IPTM7730 for the exception.

My own manager buys the stocks I suggest Personal portfolio bond

Answer

A personal portfolio bond. A person acting on your behalf can select the property, and you have a say in the selection.

HMRC and the statute

ITTOIA 2005 s.516 (person acting on behalf of the holder); IPTM7715: "any say, even indirectly"; IPTM7730: the adviser is "no more than a conduit".

The mandate names the five shares the manager may buy Personal portfolio bond

Answer

A personal portfolio bond. Objectives that restricted leave the manager no real choice, so HMRC treats you as the one selecting.

HMRC and the statute

IPTM7730: objectives "so restricted that it is effectively the policyholder that is selecting the property".

The policy lets me pick any listed share, but I never use the option Personal portfolio bond

Answer

A personal portfolio bond. Having the option is enough, whether or not you use it.

HMRC and the statute

IPTM7715: the policyholder has the ability to select "even if the option is not exercised".

I want shares in my family company, or a flat, inside the policy Personal portfolio bond

Answer

A personal portfolio bond. Private company shares and property picked by or for you are outside the permitted categories.

HMRC and the statute

ITTOIA 2005 s.517 and s.520 (permitted property list).

The insurer builds a fund range just for me, based on my preferences Personal portfolio bond

Answer

A personal portfolio bond. HMRC says that if a policyholder had any say in the limiting conditions, the policy is a PPB.

HMRC and the statute

IPTM7780: "If a policyholder had any say in the limiting conditions ... that would make the policy a PPB."

A map of HMRC's published guidance, not a ruling on your policy. The insurer looks only at the contracts it is party to (IPTM7730), so a side agreement between you and your adviser is a risk you carry alone.

Mandate check

Is your proposed mandate inside the line?

Send the policy terms, the fund list and any investment mandate or adviser agreement. We will point to the clauses that decide who is selecting.

The permitted categories: ITTOIA 2005 s.520

A policy is not a personal portfolio bond if everything that can be selected for it falls within the categories below and the selection conditions are met (s.517).

Category	What it covers
1	Property the insurer has appropriated to an internal linked fund
2	Units in an authorised unit trust
3	Shares in an investment trust, or an overseas equivalent
4	Shares in an open-ended investment company
5	Cash, but not cash acquired in order to realise a gain on its disposal
6	A life policy or contract within the chargeable event rules, other than a personal portfolio bond
7	An interest in a collective investment scheme, including non-UK unit trusts
8	Shares in a UK REIT, or an overseas equivalent
9	An interest in an authorised contractual scheme or a Reserved Investor Fund (Contractual Scheme)

Sources: ITTOIA 2005 s.520(2); IPTM3640. The Treasury can change the table by regulations. The category is necessary but not sufficient: the opportunity to select the property must also be open either to all the insurer's policyholders (the general condition) or to a defined class of them (the class condition), under s.521. HMRC reads this strictly. A property or index must be "available for selection at that time by all policyholders", and limits on who can invest are acceptable "so long as the limitations are objective and are not based on personal or individual criteria" (IPTM7780).

That still leaves a UK resident a wide menu: collective funds across most asset classes, investment trusts that hold private equity or infrastructure, property through REITs, and cash. What it rules out is the single stock, the unquoted company, the direct property and the private fund picked for you alone. Whether a particular private markets vehicle counts as a collective investment scheme depends on its structure and needs checking before you rely on it.

Who counts as selecting

Being able to choose is enough, even if you never do.

A policy is a personal portfolio bond if its terms allow the property or index to be selected by the holder, a person connected with the holder, the two together, or a person acting on behalf of either (s.516). HMRC says this "extends to circumstances where a policyholder has any say, even indirectly, in the selection of the property", that an unused option still counts, and that if you later select other property the terms will be taken to have been varied (IPTM7715).

HMRC's guidance accepts two structures. One is the insurer's internal linked fund: choosing between funds by risk level is not selecting property, because the insurer or its manager selects the investments (IPTM7720). The other is a manager the insurer appoints, acting as the insurer's agent, or a broker-managed fund open on the platform: "A policy written in these terms would not in general be a PPB" (IPTM7725).

The exception is the one that catches most bespoke mandates. If your investment objectives are so restricted that the adviser is "no more than a conduit or agent through whom the policyholder gives the insurer its instructions", the policy is a personal portfolio bond, and "the terms of the legislation cannot be avoided simply by interposing an investment adviser or broker" (IPTM7730). The same paragraph says the insurer need only review the contracts it is party to. A side letter with your manager is therefore not something the insurer will catch for you.

The personal portfolio bond charge

Why the rule exists, and what it does to the numbers.

HMRC describes the regime as anti-avoidance "aimed at preventing the placement of personal assets within the chargeable event regime to benefit from postponement of tax" (IPTM3600; s.515). At the end of each insurance year except the last, a gain of 15% of the premiums paid, plus earlier deemed gains, less earlier part-surrender gains, is treated as arising (s.522; IPTM3650; HS321 gives the formula as 15% of (A + B - C)). It is taxed as a chargeable event gain although no cash leaves the policy, with no basic-rate credit on an offshore policy. Insurers' technical guidance, including M&G's, states that top-slicing relief is not available on these deemed gains.

On a £5,000,000 premium, year one alone is a deemed gain of £750,000 and, at 45%, £337,500 of tax. That is the reason a US-style or Continental-style bespoke PPLI mandate, where the client or the client's own manager chooses individual securities, does not work for a UK resident. The UK-workable version holds permitted property or uses a manager whose choices you do not direct. The worked example, the transitional rules for policies from before 17 March 1998 (IPTM3620) and the history in SI 1999/1029 are in the personal portfolio bond rules explained.

Switching inside the policy

The practical freedom the policy gives you.

The chargeable events are listed in ITTOIA 2005 s.484: surrender, assignment for value, maturity, death giving rise to benefits, and part surrenders or assignments that exceed the 5% allowance. A switch from one permitted fund to another inside the same policy is not on the list. You can rebalance, change the risk level, move from one authorised fund to another or change the insurer-appointed manager without a UK tax event and without a line on your tax return.

Two things do create an event. Taking money out beyond the cumulative 5% allowance is a part surrender, covered in the 5% withdrawal allowance. Moving to a different insurer is not a switch at all: the old policy has to be surrendered, and the gain is taxed. Switching funds, managers or insurer sets out the options when a family wants to change insurer.

Investment flexibility questions

What can an offshore bond invest in for a UK resident?

The investments you can select must fall within the permitted categories in ITTOIA 2005 s.520: the insurer's internal linked funds, authorised unit trusts and OEICs, other collective investment schemes including non-UK funds, investment trusts, UK REITs and overseas equivalents, authorised contractual schemes, other non-PPB life policies, and cash not held to make a gain. The choice must be open to all the insurer's policyholders or to a defined class of them.

Can I switch funds inside the policy without paying tax?

Yes. A switch between funds inside the policy is not one of the chargeable events listed in ITTOIA 2005 s.484, so it does not create a gain. Withdrawals above the cumulative 5% allowance, assignment for value, full surrender, maturity and a death that ends the policy do. Moving to a different insurer means surrendering the policy, which is a chargeable event.

Can I use my own discretionary manager?

Only with care. HMRC accepts that a manager or adviser acting as the insurer's agent, where you cannot select individual assets, would not in general make the policy a personal portfolio bond (IPTM7725). If your instructions or restrictions mean you are effectively choosing, it is one, and interposing a manager does not change that (IPTM7730).

Can the policy hold my company shares, a property or a private fund?

Shares in your own private company, or a property chosen for you, are outside the permitted categories, so a policy that allows you to select them is a personal portfolio bond. Exposure to private markets through an investment trust or a collective investment scheme on the insurer's general list can be possible; whether a particular vehicle qualifies depends on its legal form.

What is the 15% deemed gain?

If a policy is a personal portfolio bond, a gain of 15% of the premiums paid plus earlier deemed gains, less earlier part-surrender gains, is treated as arising at the end of every insurance year except the last (ITTOIA s.522). It is taxed as income each year even though no cash is paid out. On a £5,000,000 premium the first year's deemed gain is £750,000, or £337,500 of tax at 45%.

Does top-slicing relief reduce the tax on a deemed gain?

Insurers' technical guidance, including M&G's, states that it does not. The deemed gains are deducted when the final gain is calculated on surrender (ITTOIA s.491), but if they exceed the real growth, deficiency relief is limited: it gives no relief against income taxed at 45%, and it may not be available at all for a shortfall created by deemed gains.

If I never actually pick an individual share, am I safe?

Not if the policy terms let you. HMRC says a policyholder who is entitled to exercise an option to select property has the ability to select even if the option is not exercised (IPTM7715). The test looks at what the terms permit, and at any say you have, even indirectly.

Does the insurer make sure the policy is not a personal portfolio bond?

The insurer designs its policy terms and fund lists and issues the chargeable event certificates, but HMRC says it need only review the contracts it is party to (IPTM7730). An informal understanding between you and your adviser about what to buy is outside what the insurer sees, and the tax consequences fall on you.

PPLI.com is not authorised by the Financial Conduct Authority and does not give personal advice. This is general information about UK law, not an invitation or inducement to enter into any insurance or investment contract. Policies issued by insurers outside the UK are not protected by the Financial Services Compensation Scheme.

Sources and authorities

Correct as of 23 September 2026, for the tax year 2026/27. Whether a given mandate sits inside the line is a question for its own documents.

ITTOIA 2005 s.484: chargeable events.
ITTOIA 2005 s.491: calculation of the gain on a final event, deducting earlier gains including personal portfolio bond gains ("PG"; subsection (4)).
ITTOIA 2005 ss.515 to 521: personal portfolio bonds (s.516 definition; s.517 exclusion; s.520 permitted property; s.522 deemed gain).
IPTM3600, IPTM3620, IPTM3640 and IPTM3650: purpose, transitional rules, permitted property, the 15% charge.
IPTM7715, IPTM7720, IPTM7725, IPTM7730 and IPTM7780: HMRC guidance on who is selecting.
ITTOIA 2005 s.522 and HS321 (2026): the 15% of (A + B - C) formula.
ITTOIA 2005 s.535(6) and IPTM3830: no top-slicing relief on personal portfolio bond deemed gains (the number of complete years is 1).
IPTM3860: deficiency relief.
SI 1999/1029: the Personal Portfolio Bonds (Tax) Regulations 1999, as made.
gov.uk: Capital Gains Tax rates and allowances; income tax rates 2026/27; savings rates from 6 April 2027.
M&G: offshore bonds taxation (insurer technical guidance, a secondary source): top-slicing relief not available on personal portfolio bond deemed gains.

Last updated: 23 September 2026. The checks behind this page are described in our editorial standards.

Library · 4 articles

UK research on investment flexibility

Investor control

The personal portfolio bond rules: why a bespoke PPLI portfolio fails for UK residents

UK research · 2026/27

Switching

Switching funds, managers or insurer inside a UK-taxed policy

UK research · 2026/27

Withdrawals

The 5% withdrawal allowance: tax-deferred, not tax-free

UK research · 2026/27

Tax on the gain

Chargeable event gains and top-slicing relief on an offshore bond

UK research · 2026/27

All UK investment flexibility research.

Check a mandate before you sign it

Send the policy terms and the fund list, and tell us who makes the choices.

Ask About PPLI

Author

Eldar Edmond Grady

CEO, PPLI.com

Checked against UK primary sources. The statutes, HMRC manual paragraphs and regulator pages cited are linked in the text so each statement can be read beside its basis.

Last updated: 23 September 2026
Editorial standards

What an offshore policy can invest in for a UK resident

Wide choice, one firm line

Six decisions an investor makes

You rebalance from equities to bonds

You change fund manager

You want someone else to run it

Your bond fund pays out every quarter

Your own manager follows your ideas

You want the family company or a flat in London inside the policy

What the 15% charge costs: year by year

The formula

Would this make it a personal portfolio bond?

I choose from the insurer's list of 200 authorised funds, the same list every policyholder sees Not a PPB

I pick a risk level and the insurer's internal fund does the rest Not a PPB

The insurer appoints an investment adviser, and I cannot pick individual assets Not a PPB

My own manager buys the stocks I suggest Personal portfolio bond

The mandate names the five shares the manager may buy Personal portfolio bond

The policy lets me pick any listed share, but I never use the option Personal portfolio bond

I want shares in my family company, or a flat, inside the policy Personal portfolio bond

The insurer builds a fund range just for me, based on my preferences Personal portfolio bond

Is your proposed mandate inside the line?

The permitted categories: ITTOIA 2005 s.520

Who counts as selecting

The personal portfolio bond charge

Switching inside the policy

Investment flexibility questions

Sources and authorities

UK research on investment flexibility

Check a mandate before you sign it

Tell us about yourself

How can we help?

Thank you