Section 540 When deficiencies arise: events following calculation events

A deficiency is treated as arising from a policy or contract on a chargeable event (“the later event”) if conditions A to C are met.

Condition A is that the later event is an event within section 484(1)(a)(i) or (iii) or (b) to (e) (surrender of all rights, final participation in profits, death, maturity, or taking a capital sum as a complete alternative to annuity payments).

Condition B is that a gain from the policy or contract has arisen on a calculation event other than a personal portfolio bond event, occurring in relation to the policy or contract in question before the later event.

Condition C is that on the later event no gain is shown by the calculation in section 491(2) (calculation of gains for such events).