CGT when a life tenant dies

Q: How might this work in practice?

Illustration only. Under her husband's will, Margaret had an immediate post death interest in a share portfolio, with capital to their children on her death. The trustees' base cost was £400,000, the value at the husband's death. When Margaret dies the portfolio is worth £650,000. The children become absolutely entitled. Section 71(1) deems a disposal at £650,000, but section 73(1) means no chargeable gain arises on the £250,000 growth. The children's base cost is £650,000. Had the trust been a lifetime settlement made by the husband in 2015 with Margaret as life tenant, her interest would not qualify. The trustees would have a chargeable gain of £250,000 on the children becoming entitled, subject to any holdover claim available because of the exit charge.

When a life tenant with a qualifying interest in possession dies, the trustees are treated as disposing of and reacquiring the trust assets at market value, but no chargeable gain arises, so the base cost is uplifted free of capital gains tax. The rule in sections 72 and 73 of the Taxation of Chargeable Gains Act 1992 only covers interests that are taxed as part of the life tenant’s estate for Inheritance Tax, so most life interests created in lifetime trusts since 22 March 2006 get no uplift. A gain held over when the assets went into the trust is also clawed back on the death.

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What happens for capital gains tax when a life tenant dies?

A life tenant is the beneficiary entitled to the income of a trust, or to use a trust asset such as a house, for life. On their death one of two things happens to the trust property, and the 1992 Act has a rule for each.

The property stays in trust, for example passing to a second life tenant or to discretionary trusts. Section 72(1) deems the trustees to dispose of and immediately reacquire the assets at market value, and says no chargeable gain accrues on that disposal (CG36450).
The property leaves the trust because a beneficiary becomes absolutely entitled, for example the children taking capital on the death. Section 71(1) treats the trustees as disposing of the assets at market value to the beneficiary, and section 73(1) says no chargeable gain accrues where the occasion is the death of the life tenant (CG36454).

In both cases the gain built up while the life tenant was alive disappears, and the new base cost is market value at the date of death. This mirrors the uplift on an individual’s own death under section 62, explained on our page on the capital gains tax uplift on death. The logic is the same: the property is taxed for Inheritance Tax as if the life tenant owned it, so it should not also bear capital gains tax.

Which life interests qualify for the uplift?

Before 22 March 2006 every interest in possession qualified. Section 72(1A) and (1B), and section 73(2A), now limit the relief for interests a person became entitled to on or after that date. The uplift applies only if, immediately before death, the interest is one of the following:

an immediate post death interest under section 49A of the Inheritance Tax Act 1984, typically a life interest created by a will;
a transitional serial interest under section 49B;
a disabled person’s interest under section 89B;
an interest in property held on bereaved minor trusts under section 71A; or
an interest held by someone who dies under 18 where the property is held on 18 to 25 trusts under section 71D.

An interest that began before 22 March 2006 continues to qualify. CG36546 lists the same categories and adds Scottish proper liferents and Northern Irish interests for life, which are settled property under sections 63 and 63A.

The test is deliberately aligned with Inheritance Tax. Section 49(1) of the 1984 Act treats a person with an interest in possession as beneficially entitled to the underlying property, but section 49(1A) limits that, for interests arising on or after 22 March 2006, to immediate post death interests, disabled persons’ interests and transitional serial interests. Where the property is part of the life tenant’s estate for Inheritance Tax, the capital gains tax uplift follows. See interest in possession trusts for the Inheritance Tax side.

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When does the uplift not apply?

The most common case is a life interest created in a lifetime settlement on or after 22 March 2006. That trust is within the relevant property regime, the life tenant’s death is not treated as a transfer of their estate, and section 72 does not apply. CG36550 and CG36551 set out the results:

If the property stays in the same trust, there is no deemed disposal at all. The trustees keep their original base cost and the gain remains in the trust.
If a beneficiary becomes absolutely entitled, section 71(1) applies with no exemption. The trustees make a chargeable disposal at market value. Because that event is also an exit from a relevant property trust, holdover relief under section 260(2)(a) is usually available, so the gain can pass to the beneficiary with the asset.

Other situations with no uplift include a deemed interest in possession under a trust for a disabled person where the property leaves the trust (CG36551), and the death of someone whose interest is measured by another person’s life. Section 72(2) gives an uplift when the owner of an interest for the life of another dies, but CG36453 confirms it does not apply on the death of the person whose life measures the interest.

What happens to a gain held over into the trust?

If the settlor put assets into the trust and claimed gift holdover relief under section 165 or section 260, the trustees took over a reduced base cost. Section 74 then switches off the exemption in sections 72(1)(b) and 73(1)(a), but restricts the chargeable gain to the held over amount (CG36510). Growth since the assets entered the trust is still washed out; only the deferred gain is collected, at the trustees’ rate of 24% for 2026 to 2027.

CG36510 gives an example: assets worth £100,000 were settled with £30,000 of gain held over, so the trustees’ cost was £70,000. When the life tenant died the assets were worth £150,000. The gain would otherwise be £80,000, but the charge is limited to the £30,000 held over gain. Where the death causes an Inheritance Tax charge, a fresh holdover claim may be possible; see holdover relief on gifts into trust.

What if the life tenant had only part of the fund, or the property reverts to the settlor?

Where the life interest is in part of the fund, the uplift applies to a corresponding part of each asset. Section 72(1) treats a right to part of the income as an interest in a corresponding part of the property, and section 72(5) treats a separately appropriated share as a separate settlement. CG36474 explains that where there are two life interests in one undivided fund, the death of one life tenant produces a deemed disposal of half of each asset.

Where the property reverts to the settlor on the death, section 73(1)(b) makes the deemed disposal no gain, no loss rather than an uplift (CG36457). This is because no Inheritance Tax is charged in that case, so there is no reason to wipe out the gain permanently.

Section 72(3) applies the same treatment on the death of an annuitant entitled to an annuity charged on settled property.

How might this work in practice?

Illustration only. Under her husband’s will, Margaret had an immediate post death interest in a share portfolio, with capital to their children on her death. The trustees’ base cost was £400,000, the value at the husband’s death. When Margaret dies the portfolio is worth £650,000.

The children become absolutely entitled. Section 71(1) deems a disposal at £650,000, but section 73(1) means no chargeable gain arises on the £250,000 growth. The children’s base cost is £650,000.
Had the trust been a lifetime settlement made by the husband in 2015 with Margaret as life tenant, her interest would not qualify. The trustees would have a chargeable gain of £250,000 on the children becoming entitled, subject to any holdover claim available because of the exit charge.

What do trustees need to do?

Identify the type of interest from the trust deed or will and the date the life tenant became entitled.
Obtain market values at the date of death for each asset, as these become the new base costs whether or not a gain is chargeable.
Check whether any assets came into the trust with a holdover claim and, if so, compute the clawed back gain.
Where a gain is chargeable on residential property in the UK, consider the 60 day reporting rules; see our 60 day property return page.
Report any chargeable gain on the trust and estate tax return for the year.

What mistakes come up most often?

Assuming every life interest gives a tax free uplift, when lifetime trusts created on or after 22 March 2006 usually do not.
Failing to record date of death values, leaving trustees or beneficiaries without a defensible base cost years later.
Overlooking a holdover claim made decades earlier when the trust was created.
Treating the death of the person whose life measures an interest as triggering an uplift for the owner of that interest.
Forgetting that where the property reverts to the settlor, the result is no gain, no loss, not a market value uplift.

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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.