How much of the return a UK family actually keeps
Six instruments and a profile that measure the distance between what a portfolio earns and what reaches the family: fees, income tax, dividend tax, capital gains tax and the compounding each of them takes with it. Every rate is the 2026/27 UK rate, and every one can be changed.
By Eldar Edmond Grady, CEO, PPLI.com · Research checked 23 September 2026
Direct holding against a policy
Held directly, a UK resident pays tax on interest, dividends and realised gains every year, and the tax paid stops compounding. Inside a non-UK life policy nothing is taxed until a chargeable event, and the gain is then taxed once, as savings income.
With the policy, the annual drag disappears and the whole return compounds; the price is the policy's charges and a heavier rate at the end, because the final gain is income at 45% for an additional-rate taxpayer rather than a capital gain at 24%. Holding directly keeps the flexibility: tax is paid as it goes, and on death the portfolio passes with no capital gains tax at all.
Which of the two leaves more depends on the tax character of the return, the horizon, the charges and how the money eventually comes out. The instruments measure each of those without assuming the answer, and on plenty of inputs they show that holding directly leaves more.
£1,000,000 of interest-bearing assets over 10 years
A single asset yielding 5% a year, all of it interest, no fees and no policy charges, for an additional-rate taxpayer in 2026/27. The figures are exact and can be checked with a calculator.
Untaxed reference 1,000,000 x 1.05^10 = £1,628,895
Held directly 1,000,000 x (1 + 5% x (1 − 45%))^10 = £1,311,651
Policy, before charges 1,628,895 − 45% x (1,628,895 − 1,000,000) = £1,345,892The policy leaves £34,241 more than holding directly, before any charge. That £34,241 over 10 years is all the room the policy's charges have to fit into, which is roughly 0.4% a year on this asset. For an asset whose return is mostly unrealised growth, the direct side pays little tax each year, so the room is smaller still.
The structure instrument and the offshore bond break-even do this calculation with charges, dividends, capital gains tax, inheritance tax and the personal portfolio bond rules included.
One engine, one UK tax model
The engine
All six instruments and the profile call the same Wealth Intelligence engine, version 1.6.0. It projects each asset class year by year: gross return, fees taken first, income taxed as it arises, growth taxed only when turnover realises it, base cost carried forward.
The UK tax position
Interest and other income at the savings rate (20, 40 or 45%), dividends at the dividend rate (10.75, 35.75 or 39.35% from 6 April 2026) and realised gains at 18 or 24%. The share of each asset class's income that is dividends is an input. Savings rates of 22, 42 and 47% from 6 April 2027 are a labelled option, never the default.
The policy
Taxed only on a chargeable event, at the average rate after top-slicing that you set; it defaults to your marginal rate. No CGT on death for the direct portfolio (HS282). Inheritance tax applied alike to both. A policy flagged as a personal portfolio bond carries the 15% deemed annual gain.
Leaving or arriving
For a family planning to leave the UK before encashment, both sides are taxed at the rate you set for the new country. For a new arrival, the policy rate is reduced by the share of foreign days. Temporary non-residence of 5 years or less can bring a gain back into UK charge.
Common questions
Does a policy make the portfolio tax-free?
No. It defers tax until a chargeable event, and the gain is then taxed as savings income at the holder's rate, with no basic-rate credit because the insurer is outside the UK (unless written through a UK branch). The instruments show both the deferral and the final charge.
Why is the default rate 45%?
The default position is an additional-rate taxpayer in 2026/27. The higher rate, leaving the UK, new arrival and custom rates are one click away, and every rate can be typed in.
Can I choose the investments inside the policy?
Only within the permitted categories, or through an insurer-appointed manager you do not direct. A policy whose assets you can select outside those categories is a personal portfolio bond and is taxed on a 15% deemed gain every year. The instruments model that case separately.
Is anything I enter sent to PPLI.com?
Nothing leaves your browser. The profile is stored there under one key and can be cleared at any time.
Instruments and related reading
Wealth Intelligence profileOne set of facts, carried into every instrumentOpen →Tax drag calculatorThe annual tax cost, asset class by asset classOpen →Offshore bond break-evenThe year a policy pays for its charges, if it doesOpen →Wealth simulatorThe whole horizon, with withdrawals, fees and taxOpen →Tax efficiencyHow a non-UK policy is taxed in the hands of a UK residentOpen →The personal portfolio bond rulesWhat a UK-workable policy may holdOpen →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 (unless written through a UK branch).
The authorities this page relies on
ITTOIA 2005 Part 4 Chapter 9, chargeable events
Gains on life policies are taxed only when a chargeable event happens: surrender, part surrender above the 5% allowance, assignment for value, maturity or the death that ends the policy (s.484). The individual who owns the policy and is UK resident in the year of the gain is liable (s.465). legislation.gov.uk, s.484
ITA 2007 s.18(4)
Chargeable event gains are savings income for an individual, so they sit in the savings bands and are taxed at 20, 40 or 45% in 2026/27. legislation.gov.uk, ITA s.18
HMRC helpsheet HS321
Gains on foreign life insurance policies do not carry the non-repayable basic-rate credit that UK policies carry, so the whole gain is taxed at the holder's rate. gov.uk, HS321
Personal portfolio bonds, ITTOIA ss.516, 520 and 522
A policy is a personal portfolio bond if the holder, a connected person or someone acting for them can select the assets outside the permitted categories in s.520. At the end of each insurance year except the last, a deemed gain of 15% of premiums plus earlier deemed gains is taxed, with no top-slicing relief. legislation.gov.uk, s.522
Income tax, savings and dividend rates
Savings rates 20, 40 and 45% in 2026/27. Dividend rates 10.75, 35.75 and 39.35% from 6 April 2026. Savings rates of 22, 42 and 47% from 6 April 2027 (FA 2026 s.5), shown here only as a labelled option. gov.uk, rate changes
Capital gains tax rates
18 and 24% for disposals on or after 30 October 2024. Business Asset Disposal Relief at 18% from 6 April 2026. Annual exempt amount £3,000. gov.uk, CGT rates
HMRC helpsheet HS282
There is no capital gains tax charge when someone dies. The personal representatives take the assets at their market value on the date of death. gov.uk, HS282
Financial Services Compensation Scheme
Life cover applies only where the failed insurer was regulated by the Prudential Regulation Authority. Policies from insurers outside the UK are not covered (unless written through a UK branch). fscs.org.uk
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