Income Tax (Trading and Other Income) Act 2005 section 440

Market value disposals

Section 440 sets out the circumstances in which the disposal of a deeply discounted security is treated as made for an amount equal to market value, rather than the actual consideration received.

• When a deeply discounted security is disposed of through certain specified types of transfer — such as transactions not at arm's length, transfers between connected persons, transfers not wholly for money, transfers on death, or transfers from personal representatives to legatees — the disposal proceeds are deemed to equal the market value of the security at the time of disposal.
• Where a deeply discounted security is converted into shares or other securities (counting as a disposal), the deemed proceeds are the market value of the shares or securities received at the time of conversion, rather than the market value of the original security.
• The conversion rule is itself subject to special provisions for strips of government securities and corporate strips.
• A "legatee" is broadly defined to include anyone who takes property under a will, on intestacy, or through an appropriation by personal representatives in satisfaction of a legacy or share in the deceased's estate.