CG37200 - Absolute entitlement: losses of trustees and other reliefs
Losses of trustees: apportionment
Losses of trustees: entitlement on or after 16 June 1999
Other trustees becoming entitled
Charities becoming absolutely entitled
Losses of trustees: apportionment
In general any reasonable basis of apportionment adopted by the trustees should be accepted. Losses arising on the actual Section 71 occasion should be allocated to the beneficiary becoming absolutely entitled. Otherwise, unless specific losses relate to particular funds they should be allocated on a broad basis according to the share of the capital going to the beneficiary. There are however no specific provisions for determining which losses brought forward have been set against which gains.
Losses of trustees: entitlement on or after 16 June 1999
On the occasion when a beneficiary becomes absolutely entitled to any settled property as against the trustee, any allowable loss which
- arises on the deemed disposal by the trustees of assets to which the beneficiary then becomes absolutely entitled, that is, as a result of the operation of TCGA92/S71 (1),
and
- cannot be deducted from gains accruing to the trustees on or before that deemed disposal of assets under Section 71(1),
is treated as a loss of the beneficiary. Losses so transferred are no longer available to the trustees. See CG15812-15813 about quantifying losses.
Under TCGA92/S71 (2C) & (2D), where the trustees have a loss on the occasion of absolute entitlement, that loss is set against available gains, those arising on the same occasion or earlier in the tax year, in priority to any other loss, but solely for the purpose of determining the amount of loss treated as belonging to the beneficiary.
Where the beneficiary has become absolutely entitled to an asset on or after 16 June 1999, and is treated as if he had incurred an allowable loss on that occasion, that loss can only be set against chargeable gains accruing on the same asset or, where the asset is an estate, interest or right in or over land, that asset or any asset deriving from that asset, as explained in TCGA92/S71 (2C). An example would be where the beneficiary holds the freehold interest in land and the trustees hold the leasehold interest, and then appoint it to him at a loss.
Connected persons
TCGA92/S71 (2) is not prevented from applying by the fact that the trustees and the beneficiary becoming absolutely entitled are connected persons, see CG14590+. TCGA92/S18 (3), see CG14561, does not override Section 71 (2).
Other trustees becoming entitled
CG37200 is equally applicable in the case where it is another set of trustees who become absolutely entitled as against the trustees with the losses.
Charities becoming absolutely entitled
Where a charity is the person becoming absolutely entitled as against the trustees, see CG66623.
Gifts hold-over relief
On the deemed disposal of various assets under TCGA92/S71 (1), chargeable gains may accrue on some, and losses may arise on the remainder of the assets to which the beneficiary becomes absolutely entitled. Where claims to hold-over relief are made in respect of some or all of the assets on which chargeable gains accrue, see CG66880+, relief should first be given under that Section and the losses set-off only against such of the gains (if any) as remain chargeable after the grant of hold-over relief.
A claim may be made for the gain on the occasion of absolute entitlement to be held over. The most likely examples are
- where the assets are Unquoted Shares
- where the assets are Business Assets
- a chargeable transfer for Inheritance Tax purposes, normally where the property was previously held on discretionary trusts and
- where the property was previously held on accumulation and maintenance trusts.
Private residence relief
If the asset to which the beneficiary becomes entitled was previously occupied as an only or main residence by a beneficiary under the terms of the settlement, not necessarily by this particular beneficiary, then TCGQA92/S225 may apply, see CG64200+.