Annex 1: Minor changes in the law made by the Act: Change 100: Gains from contracts for life insurance etc: definition of “market value”: section 545(1)
This change involves defining “market value” for the purposes of the provisions which relate to gains from contracts for life insurance etc.
Section 541(3) of ICTA provides that where an assignment of the rights under a policy of life insurance takes place between connected persons, it is deemed to have been made for a consideration equal to the market value of the rights assigned. Section 543(2) of ICTA applies the same rule to an assignment of the rights conferred by a contract for a life annuity between connected persons. “Market value” is not defined for either purpose.
The definition of “market value” in section 545(1) is by reference to section 272 of TCGA but it also mentions section 273 of that Act. Section 272(1) of TCGA defines the “market value” of assets as the price which those assets might reasonably be expected to fetch on a sale in the open market. The remainder of section 272, and section 273, of TCGA provide some further guidance about the operation of the rule in different contexts.
The definition of “market value” reflects the ordinary common sense meaning of that term, and so how that term as it relates to Chapter 2 of Part 13 of ICTA would otherwise be understood.
The intention behind sections 541(3) and 543(2) of ICTA is that the consideration that would have been payable on an arm’s length transaction is brought into account. The definition of “market value” makes this clear.
Similarly, where it is necessary for the purposes of Chapter 2 of Part 13 of ICTA to value property other than cash transferred to an insurance company in satisfaction of a premium, the price the property would achieve on an open market sale will be used. Again the definition will clarify that this is the approach taken in Chapter 9 of Part 4 of this Act.
This change provides a clarification of the law. But it is expected to have no practical effect as it is in line with current practice.