The rules on Personal Portfolio bonds and Distributor and Non Distributor funds.

Personal Portfolio Bond Rules
Since the budget of 1998 a penal tax has been imposed on a deemed gain.

The deemed gain is 15% of total premiums paid at the end of each policy year, plus total deemed gains from previous years.

Normal rules for chargeable gains apply to the deemed gain, except that there is no top slicing relief.

A bond will fall foul of these rules if the bonds holds direct assets such as bonds or equities.

Bonds written before March 1998 are allowed to continue with their asset mix as long as there are no amendments to the policy.

Distributor Funds
These are usually offshore OEICS and will qualify as a distributor each year by petition to the Inland Revenue. Only funds marketed to the UK will makes such a petition.The fund will have to distribute at least 85% of its investment income as a dividend rather than being reinvested.

Non Distributor Funds
Where a fund is not a Distributor Fund, the gain on any disposal, including the death of the investor is chargeable to Income Tax.

The whole gain is taxed as income in the year of encashment.