CG37100 - Absolute entitlement: effects: deemed disposal

TCGA92/S71 (1)

When a person becomes absolutely entitled to settled property as against the trustee, see CG34320, all that property is deemed to be disposed of by the trustee and immediately re-acquired by the trustee as `bare trustee' at market value. Any chargeable gains which arise as a result of this deemed disposal are chargeable gains of the trustee, and the ordinary rules of computation will apply. The cost of acquisition of the assets in the hands of the beneficiary will be the same market value, and there will be no second charge on the trustees if the property is handed over to the beneficiary some time later.

 

CG33520 deals with the principles upon which expenses may be allowed in respect of the deemed disposal.

 

Death of life tenant

TCGA92/S73

See CG36454 where the occasion is the termination of a life interest by the death of the person entitled to that interest.

 

Sales by trustees after

Where trustees sell assets after the occasion of charge under Section 71(1) (including cases where they sell assets to meet their Capital Gains Tax liability under Section 71(1)) but before assets are appropriated to the beneficiaries, charges on the beneficiaries should be computed under Section 60(1) in proportion to their entitlement to the assets, see CG34320.

 

Distribution of assets not as strict entitlement

Following the occasion of charge under Section 71(1), when beneficiaries become entitled to the whole of the trust assets, the trustees may distribute the assets to the beneficiaries under a scheme of division otherwise than in accordance with their proportionate shares. In this situation there are good grounds for saying that there is a chargeable disposal by each beneficiary by way of an exchange of assets.

Similarly specific assets may be appropriated by trustees to a beneficiary who has become absolutely entitled to a proportion of the settled property. In this case the exchange is between the trustees and the beneficiary.

 

It is however possible that the principles of Warrington v Brown may be applicable in these two situations, see CG37410+, so that there is no second disposal following shortly after the Section 71 (1) occasion. If the trustees and beneficiaries seek to apply those principles, no objection should be made, although any attempt to treat a subsequent disposal of an asset on an inconsistent basis should be resisted.