Deemed disposals

By Tolley in association with Paul Davies at DWF
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The following Trusts and Inheritance Tax guidance note by Tolley in association with Paul Davies at DWF provides comprehensive and up to date tax information covering:

  • Deemed disposals
  • Beneficiary becoming absolutely entitled
  • Interest in possession comes to an end
  • Definition ― qualifying interest in possession

Trustees are sometimes treated as having made a disposal of the trust property even if they have not sold or transferred the property. You will need to consider the capital gains taxation of the trustees where they make such deemed disposals.

Trustees are deemed to make disposals of the trust property where:

  • a beneficiary becomes absolutely entitled to the trust property
  • when certain interests in possession in the trust property come to an end

The following discussion of the main deemed disposal scenarios is summarised in the Flowchart - capital gains tax treatment of trustees’ deemed disposals.

Beneficiary becoming absolutely entitled

A beneficiary becomes absolutely entitled to trust property where he is able to dictate how the trustees are to deal with the property (eg by demanding that the trustees pass ownership of it to him). This will be the case in one of the following:

  • the trustees have exercised their powers of advancement or appointment of trust capital
  • an interest in possession comes to an end and the remainderman of the trust becomes entitled to the trust assets
  • the beneficiary of a trust becomes entitled to the trust property on reaching the age specified in the trust deed
Deemed disposal of trust assets

In any of these cases, the trustees are treated as:

  • disposing of the trust property for a consideration equal to its market value at the time when the beneficiary becomes absolutely entitled to it
  • re-acquiring the property at its market value

More on Capital gains tax: