Aug 18, 2026 Practitioners advising on private placement life insurance for a UK-connected client will be familiar with the difficulty: the product as constituted in the United States, a bespoke contract over a separately managed account with the policyholder’s own manager selecting the assets, is the paradigm case at which the personal portfolio bond legislation is directed. What survives that legislation is a materially different instrument, and one whose position has improved since April 2025 for reasons unconnected with insurance law.
This note sets out the specification, the points that arise where a trustee rather than an individual is the policyholder, and the diligence we would expect a professional fiduciary to undertake before subscribing.
The post-Finance Act 2025 position
The remittance basis and the domicile connecting factor were removed with effect from 6 April 2025. All UK residents are assessed on the arising basis on worldwide income and gains, and the four-year Foreign Income and Gains regime replaced the previous reliefs for new arrivals.
One consequence is frequently misstated and is worth confirming from the primary material. Chargeable event gains on foreign policies are not within the exhaustive definition of qualifying foreign income at ITTOIA 2005 s.845H, and HMRC’s RFIG45100 list omits them. A qualifying new arrival who surrenders a policy during the four-year window obtains no relief. The planning point runs the other way: the wrapper carries the accrued gain beyond year four, into the period in which arising basis assessment would otherwise apply to a directly held portfolio. Used correctly the policy extends the effect of the FIG claim rather than competing with it, and that sequencing should be settled at the point of arrival rather than reconstructed later.
Inheritance tax moved to a residence test at IHTA 1984 s.6A, long-term resident status arising on ten of the previous twenty tax years, with a tail of three to ten years of non-residence depending on the length of prior residence. Excluded property status is now dynamic: non-UK settled property is excluded only while the settlor is not a long-term resident, and falls into the relevant property regime when that changes, with ten-year anniversary charges to 6% and exit charges. The Autumn Budget 2025 introduced a £5m cap on relevant property charges per ten-year cycle for trusts settled before 30 October 2024 that previously held excluded property, applied per trust rather than per settlor.
Rates moved in the same direction. Savings rates rise by two percentage points from 6 April 2027 to 22%, 42% and 47%, and chargeable event gains follow savings income rules. Dividend ordinary and upper rates rose by two points from April 2026. Thresholds are frozen to 2030/31.
Section 520 as a build specification
A policy falls within the personal portfolio bond provisions at ITTOIA 2005 ss.515 to 526 where benefits are determined by reference to property the policyholder may select and that property is outside the permitted categories at s.520: internal linked funds, authorised unit trusts, investment trusts and overseas equivalents, OEICs and specified collective schemes, UK REITs and overseas equivalents, authorised contractual schemes, cash held otherwise than for speculative purposes, and other policies. The categories were last extended by SI 2017/1182 with effect from 1 January 2018.
The consequence of falling outside is the s.522 deemed gain: 15% of premiums paid plus prior deemed gains, arising on the last day of each insurance year. Because component B recycles earlier deemed gains, the charge compounds; cumulative deemed gains reach approximately 305% of premium after ten years, irrespective of performance or withdrawals. Top-slicing relief is unavailable, and where deemed gains exceed real gains the excess attracts no deficiency relief.
Read as a specification rather than a prohibition, the position is workable and, for a trustee, has an incidental advantage. A policy constructed so that discretion sits at fund level, through an internal linked fund or regulated collectives, is one in which neither the settlor nor the trustee selects the underlying assets. That is what keeps the contract outside s.516, and it also sits comfortably with the trustee’s own duties: the manager is appointed by and accountable to the insurer, the trustee holds a single chose in action, and the standard investment criteria at s.4 Trustee Act 2000 are applied to the decision to hold the policy rather than to a rolling portfolio.
What the specification cannot accommodate is direct equities, structured notes, unregulated funds, private equity or direct real estate selected by the policyholder. Where a client’s mandate requires those, the answer is a different structure, and the point should be made at the first meeting rather than at the second anniversary.
Time apportionment relief at s.528 survives personal portfolio bond status, which top-slicing relief does not.
Where the trustee sits in the charge
The assessment provisions repay attention because they determine who bears the charge and at what rate.
Where a policy is held by trustees of a settlement created by a UK-resident settlor who is alive, the chargeable event gain is assessed on the settlor under ITTOIA 2005 s.465 and s.467, with a statutory right of recovery from the trustees. Where the settlor has died or is not UK resident and the trustees are UK resident, the gain is chargeable on the trustees at the trust rate, and top-slicing relief is not available to trustees or to personal representatives. Where the trustees are non-UK resident, no charge arises on them; the exposure moves to the beneficiaries under the transfer of assets abroad code or on receipt.
Assignment for no consideration is not a chargeable event, which is what makes segment assignment to adult beneficiaries useful: the assignee takes the policy history, and encashment can then be matched against the beneficiary’s own allowances and rates. Assignment between spouses and on a court-ordered transfer on divorce is likewise outside the charge.
Death gives rise to a chargeable event valued at the surrender value immediately before death, not at the death benefit paid. The mortality uplift sitting above surrender value is therefore outside the charge, which is the reason for the customary 1% to 101% design. There is no capital gains rebasing: the accrued gain is realised as income in the deceased’s final tax year and the policy value remains in the estate.
Situs is determined by where proceeds are payable, following New York Life Insurance Co v Public Trustee [1924] 2 Ch 101 and HMRC’s IHTM27102. Drafting matters: a policy payable in the United Kingdom is UK situs whatever the insurer’s domicile. Correctly sited, the contract converts what would otherwise be a portfolio of UK-situs holdings into a single non-UK asset, which is a practical advantage for trustees managing an excluded property settlement whose investment universe would otherwise be constrained.
Asset selection
For interest-bearing portfolios the case is straightforward. Interest is savings income assessed as it arises at rates rising to 47% from April 2027, with a personal savings allowance of £1,000, £500 or nil. No preferential treatment is surrendered by wrapping it, and gross roll-up plus deferral, with s.528 relief available on eventual realisation, is a clean improvement.
For equity-weighted portfolios the analysis reverses: the wrapper converts gains chargeable at 18% and 24% into savings income at up to 47%, forfeits the annual exempt amount and the dividend rates, and removes the death uplift. The sensible construction is a wrapper holding the credit and fixed-income sleeve, not the whole fund.
One qualification a UK adviser will want stated. Gilts held directly are exempt from capital gains tax; inside a policy that exemption is lost and the whole return becomes income. For discount gilt strategies, direct holding remains the better answer and we say so.
Diligence before subscribing
Six questions we would expect a professional trustee to have answered and minuted.
Is the carrier’s contract capable of falling outside s.516 on its terms, and who confirms it? The insurer’s confirmation, the fund documentation and the investment mandate should be read together, and the position monitored, since the test applies continuously and a policy can move in and out of personal portfolio bond status.
Where does the reporting obligation sit? Overseas insurers have the same duties as UK insurers for policies from 6 April 2000, reporting through a tax representative or directly to HMRC’s offshore chargeable events team where gains exceed half the basic rate limit, £18,850 for 2026/27. The guidance was amended on 2 March 2026 to replace the penalty regime with a disclosure process.
What is the policyholder protection position? Practitioners should be careful here, because published material is unreliable. The Isle of Man scheme under the 1991 Regulations covers up to 90% of liabilities to policyholders, funded by levies on other authorised insurers, and is the strongest of the offshore group. Luxembourg provides no compensation scheme but a statutory super-privilege ranking insurance creditors ahead of other creditors, together with custodian deposit under the triangle of security. Guernsey substitutes independent trustee-held assets covering policyholder liabilities. Ireland’s Insurance Compensation Fund expressly excludes life policies. Jersey and Bermuda have no life scheme. The FSCS requires PRA regulation and does not extend to offshore contracts.
Does the carrier’s tax position affect the credit? The s.530 deemed basic rate credit is disapplied for foreign policies by s.531, and the s.532 relief requires a comparable EEA charge satisfying s.533, including a rate of at least 20% otherwise than by reference to profits. A carrier operating a gross roll-up regime will not satisfy that, but the conclusion should come from the insurer rather than from assumption.
Is the arrangement within the UK regulatory perimeter? Passporting ended on 31 December 2023 and firms within the Financial Services Contracts Regime may not write new UK business. Whether a Crown Dependency insurer contracting with a UK resident is carrying on a regulated activity in the United Kingdom for s.19 FSMA purposes is a specialist question and we take UK regulatory advice on the specific arrangement.
Is the structure robust to reform? HMRC’s call for evidence on offshore anti-avoidance drew responses expressly nominating personal portfolio bonds for future consultation, alongside the offshore funds rules, and the motive defence in the transfer of assets code is under review. Nothing is expected before 2027/28. A fifteen-year structure should nonetheless be built so that its merits do not rest on a single provision remaining as drafted.
This article is general commentary on published tax legislation and guidance for professional advisers. It is not tax or legal advice, and it does not consider regulatory or insurance regulatory matters. Rates and thresholds are those we understand to apply for 2026/27 in England, Wales and Northern Ireland. Treatment in any individual case depends on the client’s own circumstances and should be confirmed with their own tax counsel. Alpina Legacy does not provide investment, legal or tax advice.