Personal Portfolio Bond (PPB)

A Personal Portfolio Bond (PPB) is an insurance based product sometimes referred to as a wrap account or custodian account. PPB accounts are investment vehicles wrapped in insurance that allow for the holding of various investment instruments. PPB accounts may provide tax benefits for the policyholder relative to those of holding investments outright due to their tax treatment as insurance.

First originating in the UK in the early 1980’s to take advantage of the deductibility of contributions (Premiums) paid into life insurance products, portfolio bonds are still popular today across most commonwealth countries due to their tax deferral. PPB products are offered by both domestic insurers, and international insurers working in the offshore market. Many offshore providers are based in low, or neutral tax jurisdictions.

PPB products have significantly higher fees than brokerage accounts but may offer calculable advantages for investors when considering the cost of taxes on dividends, capital gains, inheritance, estate and other country-specific wealth taxes.

Mr. Client is an Australian national living in China. He asks his adviser how best to go about investing a lump sum of 500,000 USD to generate growth over the long term whilst ensuring that his investments remain tax efficient, even if he were to move back to Australia.

His advisor recommends an offshore PPB product from an insurer based in the Cayman Islands. Mr. Client is able to establish the policy without having to leave China. Once funded with a bank transfer, the adviser manages Mr. Client’s portfolio for him. Dividend payments received from the stocks in his portfolio are re-invested gross as Mr. Client does not have any tax obligations for events inside the PPB. The adviser is able to sell winning positions without creating a CGT liability for Mr. Client, and re-invests those proceeds gross also. Mr. Client is particularly pleased to learn that the policy will not be subject to probate, is outside of the purview of the government of the country that he currently lives in, and that there are tax benefits for him if he moves back to Australia if he abides by certain conditions whilst overseas.