What UK tax costs a portfolio each year
Tax drag asset class by asset class, from the character of the return, the dividend share and turnover, at the UK rates you choose. Tick one box to see the same portfolio inside a policy, both compliant and as a personal portfolio bond.
By Eldar Edmond Grady, CEO, PPLI.com · Research checked 23 September 2026
How the three rates apply
Interest is taxed at the savings rate, dividends at the dividend rate and realised gains at the CGT rate, each year, on a portfolio held directly. The drag is the tax paid in the first year as a share of the portfolio.
Inside a compliant policy there is no annual drag; the gain is taxed once, as savings income, on encashment. A personal portfolio bond pays tax every year on a deemed gain of 15% of premiums plus earlier deemed gains, even in a year the portfolio fell, and without top-slicing. For a portfolio held directly, the figure the calculator shows is the drag.
Four portfolios, first year, additional rate
Single-asset cases, no fees, so the arithmetic can be checked by hand.
Bonds 5%, all interest 5% x 45% = 225 bp
Equities 8%, 25% income, all dividends, no turnover
8% x 25% x 39.35% = 78.7 bp
Growth 10%, no income, all realised 10% x 24% = 240 bp
Higher rate, bonds 5% 5% x 40% = 200 bpYear 1 deemed gain 15% x 1,000,000 = 150,000 tax at 45% = £67,500
Year 2 deemed gain 15% x (1,000,000 + 150,000) = 172,500 tax at 45% = £77,625The personal portfolio bond charge in year 1 is 675 basis points of the premium at 45%, whatever the portfolio earned. For a UK resident, that charge alone rules out a self-selected portfolio inside a policy.
How the drag is calculated
Income
Each row's income is split into dividends (dividend rate) and other income (savings rate). The two are blended into one income rate for the row.
Gains
In the first year cost equals value, so the gain available to realise is that year's growth. Turnover decides how much of it is realised and taxed at 24%.
Over time
After year one unrealised gains build up and more is realised each year. The horizon table projects that, with the untaxed reference beside it.
Policy panel
Before policy charges and fees. The compliant policy is encashed at the exit rate in the tax block; the personal portfolio bond pays its deemed-gain tax out of the policy each year.
Common questions
Does the CGT annual exempt amount matter?
At £3,000 it is immaterial on a portfolio of this size and is not modelled. The same applies to the £500 dividend allowance.
Can a discretionary manager avoid the personal portfolio bond rules?
An insurer-appointed manager normally can. A mandate restricted so tightly that your instructions in effect choose the assets is treated as your selection (IPTM7730).
Instruments and related reading
Wealth simulatorThe whole horizon, with withdrawals, fees and taxOpen →Offshore bond break-evenThe year a policy pays for its charges, if it doesOpen →Tax intelligenceWhat your UK tax position costs the portfolioOpen →The personal portfolio bond rulesWhat a UK-workable policy may holdOpen →Tax efficiencyHow a non-UK policy is taxed in the hands of a UK residentOpen →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
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
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
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
IPTM7725 and IPTM7730
An insurer-appointed manager normally avoids personal portfolio bond status, but a mandate restricted so tightly that the policyholder's instructions in effect determine the assets is treated as selection by the policyholder. gov.uk, IPTM7730
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
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