Taxes Consolidation Act 1997 section 576

Person becoming absolutely entitled to settled property

Section 576 sets out the capital gains tax consequences when a beneficiary becomes absolutely entitled to settled (trust) property as against the trustee, including the deemed disposal by the trustee and the transfer of allowable losses to the beneficiary.

• When a beneficiary becomes absolutely entitled to trust property, the trustee is deemed to have disposed of and immediately reacquired all relevant assets at market value, potentially triggering a CGT charge on the trustee.
• After the deemed disposal, the trustee holds the assets as a bare trustee or nominee for the beneficiary; any subsequent transfer of those assets to the beneficiary does not give rise to a further CGT charge.
• Allowable losses on the trust assets that cannot be set against the trustee's own chargeable gains are transferred to the beneficiary and become available for offset against the beneficiary's gains.
• Losses that can be set against the trustee's gains on or before the deemed disposal must be used by the trustee first and are not available for transfer to the beneficiary.