Trust Capital Gains


Andy Wood

Andy is a practical, creative tax adviser who assists a variety of clients in achieving their personal and commercial objectives in the most tax efficient manner.

Introduction – trust capital gains

Regardless of whether the trust is an IIP or a DT then it will be liable to pay capital gains tax on where the trustees have disposed of assets that are standing at a capital gain in the relevant tax year.

Generally, the capital gains position is likely to be the same whether the trust is an IIP or a DT (although it can make an important difference for the availability to claim attractive tax reliefs).

Trust capital gains – computation

That capital gain is computed in much the same way as for an individual. Further, the rates of CGT payable by the Trustees are also the same.

There is one significant difference and that is that Trustees are only entitled to a maximum of half the regular annual exemption that applies to individuals.

It should be noted that other reliefs might be in point. For instance, in an IIP trust, it is possible for the sale of shares in a Company to qualify for Entrepreneurs’ Relief, albeit special conditions apply. It is also possible for a disposal of a property being used as a beneficiary’s main residence to qualify for private residence relief.

Once again, these gains go on the trust tax return with the same deadlines as exist for individuals in the Self-Assessment regime.

Appointment of assets to a beneficiary

A Trustee may also be liable for CGT when they appoint capital assets belonging to the trust to a beneficiary.

This ‘deemed disposal’ will take place at market value on the date of the appointment.

The normal CGT rules apply for calculating the gain and the resulting gain will be taxed in the same way as gains made on the sale of assets by the trustees discussed above.

Transferring assets to a trust

Unless one is transferring cash to the trust, or assets that are not standing at a gain, then CGT will be an issue. Despite the fact that there person will not be receiving any cash for the transfer then there will still be a taxable disposal for CGT purposes.

However, the gain that arises on the transfer to a trust can be deferred by means of holdover relief. This means that no CGT liability arises on transfer and the Trustees are deemed to acquire the historic base cost. In short, they inherit the Settlor’s capital gain.

Holdover relief will always be due on the transfer to a trust (other than a bare trust) unless the trust is settlor interested, for the benefit of minor children or the trustees are resident overseas.

Non-UK resident trusts

At the basic level, a non-resident person will not pay UK CGT on the disposal of asset whether they are in the UK or otherwise.

However, this basic rule is bolstered by a huge raft of anti-avoidance rules where the settlor and / or the beneficiaries are UK resident persons.

Further, from April 2019, all direct and indirect disposals of UK real estate by non-resident persons are within the scope of UK CGT (except for an Overseas Pension Scheme).

If you have any queries regarding trust capital gains, or trusts in general, then please do not hesitate to get in touch.

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