In this section:
- Introduction to trusts and Capital Gains Tax
- Calculating Capital Gains Tax for trusts: the basics
Calculating Capital Gains Tax for trusts: the basics
The rules about Capital Gains Tax for trusts are similar to those for individuals. But there are a few small differences. This guide gives a basic overview and points you towards more help. The information and rates are for the tax year 2008-09.
On this page:
- The Capital Gains Tax calculation
- Allowable expenses
- Reliefs
- Allowable losses
- The annual exempt amount
- More useful links
The Capital Gains Tax calculation
You work out Capital Gains Tax by:
- working out the gain or loss for each item you sell, transfer or otherwise dispose of, taking off any allowable expenses and reliefs
- taking away your total allowable losses from your total gains - this gives you your net gain or loss
- taking off losses brought forward from an earlier year
- taking off the annual exempt amount
Read more about the Capital Gains Tax calculation in the guidance notes for form SA905 Trust and Estate Capital Gains.
Find form SA905 and guidance notes
There's more information about each of these four steps, covered in order below.
Allowable expenses
Trustees can deduct certain expenses when they work out the trust's capital gains. There are two common types of expense:
- the cost of improving property or land to increase its value when it's sold or transferred - like building a conservatory
- the costs involved in buying and transferring or selling the item - like having a property valued before selling it or paying solicitor’s or stockbroker fees
The types of expense that are allowable depend on the type of asset. You can find out more in our guides on Capital Gains Tax reliefs for different kinds of assets.
You can read more about allowable expenses on pages 12 and 13 of the guidance notes to form SA905.
Download form SA905 Notes on trust and estates capital gains (PDF 195K)
Reliefs
There are several different reliefs available that trustees may be able to use to reduce the trust's Capital Gains Tax.
Hold-over Relief
Hold-over Relief lets trustees transfer assets to beneficiaries - or other trustees in certain circumstances - without paying Capital Gains Tax. The recipient usually pays the tax when they sell or transfer the asset.
The rules for Hold-over Relief are quite complicated and they vary depending on what’s being sold or transferred. Follow the links below for more information. Help Sheet 295 ‘Relief for Gifts and Similar Transactions’ has a form at the end for making a claim.
Download Help Sheet 295 Relief for Gifts and Similar Transactions (PDF 103K)
Private Residence Relief
This relief exempts people from Capital Gains Tax when they sell or transfer their main home. For trustees, it applies to any property - including up to half a hectare of grounds - that's owned by the trustees and is the main residence for someone entitled to occupy it under the trust's terms.
Download information about Private Residence Relief (PDF 84K)
Entrepreneurs' Relief
Entrepreneurs' Relief lets individuals claim tax relief on capital gains up to a lifetime limit of £1 million when they:
- sell all or part of a business
- dispose of assets when the business stops trading
Trustees can claim this relief when a trust sells or transfers:
- shares in the family company of a beneficiary, who must also be an officer or employee of the company
- assets used in a business carried on by the beneficiary, either personally or as a partner
The relief only applies if the assets are from a business that has stopped trading.
The trustees and the beneficiary must make a joint claim. It is limited to £1 million for each beneficiary. This amount is reduced by any relief the beneficiary has claimed on the sale or transfer of their own assets.
If the gains you make are eligible for Entrepreneurs' Relief, you will pay 10 per cent tax on these gains, not the usual 18 per cent.
Read more about Entrepreneurs Relief
Allowable losses
As well as paying tax on gains, trustees must work out any losses from the sale or transfer of assets. They must offset these against taxable gains. If losses in any tax year are higher than that year's gains, they are carried forward and deducted from the next year's gains.
Trusts have a tax-free capital gains allowance each year - the annual exempt amount. If losses brought forward reduce the capital gains of the year to this level, anything left is carried forward to the next year. You can find out more about the annual exempt amount in the section below.
Example
In 2007-08 a trust has capital gains of £12,000 and allowable losses of £15,000. The trustees take the losses away from the gains, leaving no chargeable gains for the year. There's no Capital Gains Tax to pay and unused losses of £3,000 to carry forward to 2008-09.
In 2008-09 the trust has gains of £7,000 and no losses. The trustees only use £2,200 of the previous year's losses to reduce the gain to the level of the annual exempt amount - £4,800 for 2008-09. They still have £800 of unused losses left to carry forward to 2009-10.
Recording allowable losses
You record losses, including those carried forward from previous years, on form SA905 Trust and Estate Capital Gains.
Find form SA905 Trust and Estate Capital Gains and guidance notes
The annual exempt amount
The annual exempt amount lets individuals and trustees make some capital gains without paying tax.
For most trustees, the annual exempt amount for 2008-09 is £4,800. An exception to this is a trust set up for a beneficiary who is disabled. In these cases, the annual exempt amount is £9,600 - the same as for individuals.
Check Capital Gains Tax rates and thresholds for earlier years
If the person who created the trust - the settlor - sets up more than one UK resident trust, including trusts of insurance policies, the trustees must divide the annual exempt amount by the number of trusts. If they have more than five, an exempt amount of £960 applies to each. This only affects trusts set up after 7 June 1978, unless it's a trust for a disabled beneficiary, in which case it applies to trusts set up after 9 March 1981.
You can find out more about who pays Capital Gains Tax when there’s a trust in the guide below.
Introduction to trusts and Capital Gains Tax
More useful links
Download the Trust and Estate Tax Return, supplementary pages and help notes
You can find out about Capital Gains Tax reliefs available through the ‘Enterprise Investment Scheme’ in the guide below.
You can find out how to pay your trust’s Income Tax and Capital Gains Tax in our ‘How to pay’ section, using the guide below.
