diff --git a/compiler/parse/state/tag.js b/compiler/parse/state/tag.js
index e8c627c93a..457ed4f950 100644
--- a/compiler/parse/state/tag.js
+++ b/compiler/parse/state/tag.js
@@ -57,12 +57,12 @@ export default function tag ( parser ) {
 			const lastChild = element.children[ element.children.length - 1 ];
 
 			if ( firstChild.type === 'Text' ) {
-				firstChild.data = trimStart( firstChild.data );
+				firstChild.data = trimStart( decodeCharacterReferences( firstChild.data ) );
 				if ( !firstChild.data ) element.children.shift();
 			}
 
 			if ( lastChild.type === 'Text' ) {
-				lastChild.data = trimEnd( lastChild.data );
+				lastChild.data = trimEnd( decodeCharacterReferences( lastChild.data ) );
 				if ( !lastChild.data ) element.children.pop();
 			}
 		}
diff --git a/test/parser/convert-entities/input.html b/test/parser/convert-entities/input.html
new file mode 100644
index 0000000000..bc5c086536
--- /dev/null
+++ b/test/parser/convert-entities/input.html
@@ -0,0 +1 @@
+<p>Hello &amp; World</p>
diff --git a/test/parser/convert-entities/output.json b/test/parser/convert-entities/output.json
new file mode 100644
index 0000000000..b086da06eb
--- /dev/null
+++ b/test/parser/convert-entities/output.json
@@ -0,0 +1,27 @@
+{
+  "hash": 1090309355,
+  "html": {
+    "start": 0,
+    "end": 24,
+    "type": "Fragment",
+    "children": [
+      {
+        "start": 0,
+        "end": 24,
+        "type": "Element",
+        "name": "p",
+        "attributes": [],
+        "children": [
+          {
+            "start": 3,
+            "end": 20,
+            "type": "Text",
+            "data": "Hello & World"
+          }
+        ]
+      }
+    ]
+  },
+  "css": null,
+  "js": null
+}