(1)Where—
(a)a policy of life insurance is issued in respect of an insurance made after 26th March 1974 or is after that date varied or substituted for an earlier policy, and
(b)at the time the insurance is made or at any earlier or later date an annuity on the life of the insured is purchased, and
(c)the benefit of the policy is vested in a person other than the person who purchased the annuity,
then, unless it is shown that the purchase of the annuity and the making of the insurance (or, as the case may be, the substitution or variation) were not associated operations, the person who purchased the annuity shall be treated as having made a transfer of value by a disposition made at the time the benefit of the policy became so vested (to the exclusion of any transfer of value which, apart from this section, he might have made as a result of the vesting, or of the purchase and the vesting being associated operations).
(2)The value transferred by that transfer of value shall be equal to whichever of the following is less, namely,—
(a)the aggregate of—
(i)the value of the consideration given for the annuity, and
(ii)any premium paid or other consideration given under the policy on or before the transfer; and
(b)the value of the greatest benefit capable of being conferred at any time by the policy, calculated as if that time were the date of the transfer.
(3)The preceding provisions of this section shall apply, with the necessary modifications, where a contract for an annuity payable on a person’s death is after 26th March 1974 made or varied or substituted for or replaced by such a contract or a policy of life insurance as they apply where a policy of life insurance is issued, varied or substituted as mentioned in subsection (1) above.