SA Bond returning to UK

Taxation issues for an individual who is or is likely to become a UK Resident and owns a Life Account/Life Account 2 or Investment Portfolio/Investment Portfolio +.

An Introduction

The Life Account (LA), Life Account 2 (LA2), Investment Portfolio (IP) and Investment Portfolio + (IP+) bonds are specifically designed for South African residents. The LA/LA2 are single-premium life assurance contracts whereas the IP/IP+ are capital redemption contracts.


Product name

Product Type

Issued by

Life Account & Life Account 2

Single premium life assurance

Old Mutual Guernsey Ltd

Investment Portfolio & Investment Portfolio +

Single premium capital redemption

Old Mutual Isle of Man Ltd

The LA and LA2 allow investors to access ‘internal’ life funds only and therefore do not meet the Personal Portfolio Bond (PPB) definition in the UK. Normal chargeable event rules will apply to these products, details can be found on this in our article ‘UK taxation of offshore bonds, part I’.

As the IP and IP+ offer investors a significantly increased range of assets including collective investments schemes and shares listed on recognised stock exchanges (accessed through the “Authorised Custodian Facility”), if the holder of these products decides to move or return to the UK and becomes resident here they would be treated as PPBs for UK tax purposes.

Please note, restrictions applying to the South African products as outlined in the terms and conditions will still apply once resident in the UK i.e. restrictions on withdrawals in the initial 5 years of the contract. This article only considers how the products are treated in the UK from a tax perspective.

Personal Portfolio Bond legislation

The PPB legislation is an anti-avoidance measure which imposes a yearly deemed gain on life assurance and capital redemption policies where the property that determines the benefits is able to be selected by the policyholder. The deemed gain is subject to income tax where the policyholder is UK tax resident.

The legislation can be found in Income Tax, Trading and other Income Act (ITTOIA) 2005 Sections 515 to 526.

The PPB legislation applies for policy years ending on or after 6 April 2000 and the tax year 2000-2001 is the first for which a PPB gain can arise.

PPB tax charge

Where a policy is regarded as a PPB then the PPB legislation imposes a tax charge of 15% on an artificial deemed gain on the policy for policyholders who are UK resident individuals, UK resident settlors or UK resident trustees (where the settlor is not UK resident or has died).

The tax charge based on the PPB deemed gain is payable yearly for UK resident policyholders. The PPB deemed gain is calculated at the end of each policy year while the policy is in force. It does not apply on surrender, death or maturity, but previous amounts are taken into consideration as shown in the example below.

Returning to the UK with an IP or IP+

The test of whether a policy is a PPB is an ongoing test. If a policy was originally a PPB but its terms were varied so that it ceased to be a PPB then the PPB tax charge will not arise.

The yearly PPB deemed gain only arises if a policy or contract is a PPB on the last day of the related policy year.

Therefore, for policyholders who are returning to the UK and will become UK tax resident or have just returned to the UK with an IP or IP+ bond the following options are available:

  • Do nothing, in which case the tax charge for a PPB deemed gain will apply.
  • Request Old Mutual to endorse the policy and therefore restricting the assets to permitted assets only.

Things to consider where the option to endorse has been requested

The policy can be endorsed to permitted assets only. Any assets which are not permitted will need to be disposed of and reinvested in permitted assets before the endorsement can be applied.

Policyholders will also need to consider whether the time is right to sell any assets not permitted. They will need to weigh up the cost of a tax charge on the deemed gain against the potential for increase in the value of assets, were the sale deferred.

Old Mutual International is not in a position to provide any form of advice in such matters. Some assets have restricted dealing days which may also cause delays to disposal and therefore application of the endorsement.

What happens if a policy is not endorsed before the time limit expires?

The tax charge for the PPB deemed gain will apply. The charge is assessed on the day before the policy anniversary each year. The charge will cease to apply for the policy year ending after the policy has been endorsed provided all PPB assets, if any, have also been sold by that date.

So, if the policyholder, whose policy commenced on 6 March 2014, became UK resident in June 2014, they did not endorse their policy and therefore a tax charge for the PPB deemed gain would apply for the 6 March 2014- 5 March 2015 policy year.

The policyholder then request to endorse the policy and this applies from 1 May 2015. Therefore, no further PPB charge will apply on the 6 March 2015- 5 March 2016 policy year. As on the day the PPB deemed gain test next applies (in this example is 5 March 2016) the PPB has been endorsed so it can only hold permitted assets.

An example is provided below for an individual who opens an IP+ whilst resident in South Africa returning to the UK:

Mr Coetzee pays a premium of £100,000 into an IP+ bond with Old Mutual International on 20 July 2013. He moved back to the UK on 1 March 2014 and does not ask Old Mutual International to endorse his bond therefore a PPB deemed gain arises 19 July each year that Mr Coetzee is a UK resident.

Policy year ending


Previous Cumulative deemed gains

Previous excess gains


Yearly deemed gains

Cumulative deemed gains

19 July 2014




x 15%

= £15,000


19 July 2015




x 15%

= £17,250


For a more in depth overview of the PPB tax charge, refer to our article on ‘UK Taxation of offshore bonds part 3

For financial advisers only. Not to be relied on by consumers.

The information provided in this article is not intended to offer advice.

It is based on Old Mutual Wealth or Old Mutual International's interpretation of the relevant law and is correct at the date shown on the title page. While we believe this interpretation to be correct, we cannot guarantee it. We cannot accept any responsibility for any action taken or refrained from being taken as a result of the information contained in this article.

Financial Adviser Verification

The content of this site is for advisers only. It is not for the use of Hong Kong advisers. You can change the regional content by selecting a region from the drop down box in the top right-hand corner.