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When an in-specie transfer can result in a 15% deemed tax charge

European Wealth Bond/Wealth Portfolio

The European Wealth Bond (EWB)/Wealth Portfolio (WP) is an offshore bond that allows investment in assets that would otherwise create a highly personalised portfolio bond (PPB).

This type of product provides the means to be invested in equities and other securities as well as structured products without incurring an annual tax charge on 15% deemed gains. This can only be achieved by ensuring full compliance with the chargeable events legislation which includes specific rules on PPBs.

To ensure the EWB/WP is not classified as a PPB, the terms of the policy prevent the policyholder(s) or someone acting on their behalf from selecting or having any influence over the assets in the policy and this includes both the inward investment (premium) and the resulting portfolio.

Whilst an investment mandate is provided to the discretionary manager, this cannot apply any restrictions on what assets are selected and is only used to establish the risk profile and planning objectives of the policyholder. For example, stringent ethical considerations that might severely restrict asset choice cannot be requested by the policyholder.

It is imperative that the integrity of the policy is maintained and there is no question that the policyholder (or someone on their behalf) has any influence on the investment strategy of the contract. This decision is made by OMI – who in turn appoint the discretionary manager to manage the investments linked to the contract. That is why we will only accept ‘cash’ premiums into our product.  We believe (and our legal advice supports this) that by accepting an in-specie transfer into such a policy – the integrity of the policy would be called into question.

The most robust approach to avoid any contamination of the arrangement by personalised assets is to exclude payment of the premium by way of an in-specie transfer. If assets currently held in the name of the policyholder or on their behalf in an existing arrangement are used to set up the bond, the very fact, the investor may have had influence over the selection of those assets, is enough to render such a policy highly personalised in nature.

The financial risk of an in-specie transfer for the policyholder is extremely high and must raise the question why anyone would chose to invest using existing assets rather than cash. Being out of the market for a relatively short period of time, whilst liquidating assets, must surely be preferable to paying income tax on annual 15% deemed gains?

Someone who invests through a competitor company that allows in-specie transfers may only become aware they own a PPB some years later, resulting in a significant tax liability.

We understand that some competitors have a different view – therefore we would encourage you to ask the following questions in relation to accepting in-specie transfers into such products:

  1. What legal and tax advice have they got which supports this view?
  2. Will the provider confirm they will cover the 15% deemed gain tax charge liability if their understanding is incorrect and HMRC challenge the arrangement?

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

It is based on Old Mutual Wealth'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. Old Mutual Wealth cannot accept any responsibility for any action taken or refrained from being taken as a result of the information contained in this article.


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

It is based on 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. Old Mutual International cannot accept any responsibility for any action taken or refrained from being taken as a result of the information contained in this article.

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