What is a Protected Cell Company?

London & Colonial Assurance PCC Plc (‘LCA’) is structured as a protected cell company (‘PCC’). But what is a protected cell company and what benefits can this company structure provide to your clients?

Introduction

Whilst you may not be familiar with this type of structure, protected cell companies have been around for over 20 years and are recognised by HM Revenue & Customs (‘HMRC’). Commonly the PCC is associated with captive insurance companies but many insurance companies in Gibraltar are structured as PCCs under the Protected Cell Companies Act 2001 due to the greater protection this structure offers policyholders.

A PCC is a limited company which has been divided into distinct portions or segments (known as Cells). All of these Cells are kept separate from one another in order to protect each investor’s assets from other investors.

More details on a PCC structure can be found in HMRC’s international manual (INTM236500).

Protection for investors

The PCC structure affords a high level of protection for investors. When a customer purchases an estate planning, investment, or pension product from LCA, the product (their policy) will be linked to one of the legally recognised Cells that has been created within LCA.

All the assets and liabilities associated with the customer’s policy are totally distinct from those of any other Cell. This means that one customer’s investment choices are completely safeguarded from another customer’s investment choices.

Furthermore, as each Cell is ringfenced, a creditor of another Cell, or even LCA itself will have no right of recourse against any other Cell that exists within the company.

How does it work

The assets or funds purchased with the customer’s investment are placed into a Cell. The Cell is given a designation number which corresponds to the policy number.

As the Cells are ringfenced the funds that sit within one Cell are not combined with any other customer even if that customer has also invested in the same fund.

The customer’s Cell is used to support their policy. For example, if the customer has purchased an annuity the assets within their Cell will be used to provide their annuity payments.

Any investment growth on the funds is added to the Cell’s assets. Similarly, any liabilities (for example annual management charges, and adviser fees) are deducted.

And any losses due to the performance of the funds that LCA has purchased on the customer’s investment adviser’s instructions will be reflected in the value of the Cell.

What happens on death

As well as purchasing a LCA product each customer has the option to buy a preference share in LCA. The preference share is linked to the Cell that holds the assets and liabilities that support the customer’s policy.

On the customer’s death the assets sitting within the Cell remain ringfenced from the company and all other customers. This means that the person entitled to the preference share is now entitled to the value of the remaining assets that are sitting in the Cell. So, the value of the funds left can be passed as a legacy to the customer’s beneficiaries.

And being a preference share in an unlisted company means that if the customer has held the preference share for more than two years it qualifies for business relief enabling the value left to pass free of UK inheritance tax up to 05 April 2026.

From 06 April 2026, the proceeds of the preference share, up to £1m, is 100% exempt from inheritance tax. Any proceeds that exceed the £1m allowance will benefit from 50% business relief and inheritance tax will be payable on the excess.

Finally

LCA has a long history in the UK market and has been providing suitable products for investors and servicing advisers for over 20 years. For information on LCA’s flexible annuities or the benefits of purchasing a preference share please visit our product webpages.

If you are an adviser and you’d like to work with us or or find out more, visit our helpful adviser guide here.

 

 

This article is based on London & Colonial Assurance PCC Plc’s understanding of applicable UK tax legislation and current HM Revenue & Customs practice, as of November 2024, which could be subject to change in the future.

The Flexible Pension Annuity ('FPA') is a unit-linked lifetime ('pension') annuity, written on a single life basis, and is purchased using crystallised pension assets.

It is available to UK tax residents, who have at least £100,000 to invest, and are looking for flexible tax efficient income ('annuity') payments for life. You and your clients are in control of the income payment amounts, the income frequency and how your client’s investments are managed. These can all be set at outset and varied at any point.

The Flexible Life Annuity ('FLA') is a unit-linked purchased life annuity, written on a single life basis.

It is available to UK tax residents, who have at least £100,000 to invest, and are looking for flexible tax efficient income ('annuity') payments for life. You and your clients are in control of the income payment amounts, the income frequency and how your client’s investments are managed. These can all be set at outset and varied at any point.

Want to recommend our products to your clients?

We'd love to work with you and it's easy to get started, just register here

Want to see what our adviser onboading process is like?