HMRC lists the common occasions in CG37300: a beneficiary reaches a specified age, such as 25, under a contingent gift; a fixed date or a contingency arrives, such as the death or remarriage of a named person, even if the trustees still have prior charges to meet; a life interest ends and the capital passes outright to the remaindermen; the trustees exercise a power of appointment or advancement, including the statutory power under section 32 of the Trustee Act 1925; all the beneficiaries, being adults with full capacity, agree to end the trust, in which case the date is when the scheme of distribution is agreed. The date can decide which tax year the gain falls in. In England and Wales a trustees' resolution is not itself enforceable, so on an appointment absolute entitlement does not arise until a deed is executed or the property is actually transferred (CG37300). Where a beneficiary only becomes entitled to a share, the deemed disposal covers only the assets to which they become entitled.

When a beneficiary becomes absolutely entitled

When a beneficiary becomes absolutely entitled to trust property, TCGA 1992 section 71(1) treats the trustees as selling the assets at market value and immediately buying them back as bare trustees. Any gain is the trustees’ gain, taxed at 24% after the trust’s £1,500 annual exempt amount for 2026 to 2027, and the beneficiary’s base cost becomes that market value. The charge can be removed or deferred by the death of a life tenant, holdover relief, private residence relief, or reduced by losses.

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What does absolutely entitled mean?

A person is absolutely entitled as against the trustee when they have the exclusive right to direct how the property is dealt with, subject only to the trustees’ right to hold on to it to pay duty, taxes, costs or other outgoings (TCGA 1992 section 60(2)). HMRC summarises this in CG34320: the trustee has no control over the property except with that person’s permission, or the person can take complete control immediately or on giving notice.

Two points often surprise people. First, the trustees’ right to retain assets to meet tax or costs is ignored, so entitlement can arise before anything is handed over. Second, section 71(3) treats a person as absolutely entitled if they would be but for being a minor or under another disability. From that point the property is held on a bare trust and section 60(1) treats it as the beneficiary’s own; see bare trusts and tax.

When does it happen?

HMRC lists the common occasions in CG37300:

a beneficiary reaches a specified age, such as 25, under a contingent gift;
a fixed date or a contingency arrives, such as the death or remarriage of a named person, even if the trustees still have prior charges to meet;
a life interest ends and the capital passes outright to the remaindermen;
the trustees exercise a power of appointment or advancement, including the statutory power under section 32 of the Trustee Act 1925;
all the beneficiaries, being adults with full capacity, agree to end the trust, in which case the date is when the scheme of distribution is agreed.

The date can decide which tax year the gain falls in. In England and Wales a trustees’ resolution is not itself enforceable, so on an appointment absolute entitlement does not arise until a deed is executed or the property is actually transferred (CG37300). Where a beneficiary only becomes entitled to a share, the deemed disposal covers only the assets to which they become entitled.

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How is the gain worked out?

The trustees compute a normal gain: market value at the date of entitlement, less their base cost and allowable costs. The beneficiary acquires at the same market value, and there is no second charge when the trustees later hand the assets over (CG37100). The trustees’ gains for the year are reduced by losses and the annual exempt amount and then taxed at 24% (gov.uk guidance on trusts and capital gains tax). The disposal is reported on the trust and estate capital gains pages; see the SA900 trust tax return.

Valuation needs care with unquoted shares. Where several beneficiaries become entitled at the same moment, HMRC values the total number of shares deemed to be disposed of, so a majority holding is valued as such even if each beneficiary takes a minority (CG37300). Separate appointments of specified parcels to different beneficiaries are valued separately.

How might the figures look?

Illustration only. A trust holds an investment portfolio that cost £120,000. Under the trust deed Sam becomes entitled to the capital at 25, and on that day the portfolio is worth £200,000. The trust has no other disposals that year and no reliefs apply.

Step	Amount
Market value at entitlement	£200,000
Less trustees’ base cost	£120,000
Gain	£80,000
Less annual exempt amount 2026 to 2027	£1,500
Taxable gain	£78,500
Tax at 24%	£18,840

Sam’s base cost is £200,000. If the trustees sell part of the portfolio to pay the tax before transferring the rest, those later sales are Sam’s disposals under section 60, not the trust’s (CG37100).

Which reliefs can apply?

Death of a life tenant

If the occasion of entitlement is the death of a person with an interest in possession, section 73 provides that no chargeable gain accrues, except to the extent of an earlier held over gain (CG36454). For interests that began on or after 22 March 2006, section 73(2A) limits this to interests within section 72(1B), such as an immediate post death interest, and to beneficiaries dying under 18 in an 18 to 25 trust. A lifetime ending of a life interest gets no such exemption. See interest in possession trusts.

Holdover relief

Where the property was held on relevant property trusts, the exit is normally a chargeable transfer and the gain can be held over under section 260, even if no Inheritance Tax is payable; the detail is in holdover relief when assets leave a trust. Section 260 also covers certain exempt exits from accumulation and maintenance, bereaved minors and 18 to 25 trusts. Where section 260 does not apply, trustees can claim section 165 on business assets, such as assets used in a trade carried on by the trustees or by a beneficiary with an interest in possession, and qualifying unlisted trading company shares (HS295).

Private residence relief and other reliefs

If the asset was a house occupied as an only or main residence by a beneficiary entitled to occupy it under the terms of the settlement, section 225 relief may apply (CG37200), though not where the base cost has been reduced by a section 260 claim. Trustees can also pay 18% on qualifying gains where Business Asset Disposal Relief applies to assets used in a beneficiary’s business that has ended (gov.uk); see Business Asset Disposal Relief.

What happens to losses on the deemed disposal?

Section 71(2) has its own loss rule. A loss on the deemed disposal is first set against the trustees’ pre entitlement gains, meaning gains on the same occasion or earlier in the same tax year. Any part that cannot be used that way passes to the beneficiary, and the trustees lose it. The beneficiary can use it only against a gain on the same asset, or for an interest in real property, an asset derived from it (section 71(2)(b)), carrying it forward until such a gain arises.

This transfer is mandatory even if it works against the parties (CG37208). Where some assets carry gains and others losses, holdover relief is given first, and losses are set only against gains that remain chargeable after the holdover (CG37200).

What mistakes come up most often?

Missing an automatic entitlement, such as a beneficiary reaching the specified age, because nobody signed anything.
Using the date of handover instead of the date of entitlement.
Valuing each beneficiary’s minority share of unquoted shares separately when they became entitled together.
Claiming the section 73 death exemption for a post 2006 lifetime interest that is not within section 72(1B).
Assuming the trustees can keep a loss on the deemed disposal for their other gains.
Reporting sales made after entitlement as trust disposals rather than the beneficiary’s.
Forgetting the 60 day return where UK residential property is involved; see the 60 day property return.

The end of the trust also raises Inheritance Tax and income tax points, which are drawn together in ending a trust: the tax consequences.

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Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 24 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.