In this section:
- Introduction to trusts and Capital Gains Tax
- Calculating Capital Gains Tax for trusts: the basics
Introduction to trusts and Capital Gains Tax
This guide provides an introduction to Capital Gains Tax for UK resident trusts. It covers when Capital Gains Tax needs to be paid and when it doesn’t and explains how to tell HM Revenue & Customs (HMRC) if Capital Gains Tax is owed. It covers the rules for 2008-09 onwards.
On this page:
- What is Capital Gains Tax?
- Who pays Capital Gains Tax and when it may be due
- Situations where Capital Gains Tax isn’t payable
- Working out how much Capital Gains Tax is due
- Telling HMRC about capital gains made by a trust
- Getting HMRC to check the value of your asset
- More useful links
What is Capital Gains Tax?
Capital Gains Tax is a tax on the gain in value of assets - or capital - that you own. You will normally only have to pay Capital Gains Tax when you sell, give away or otherwise ‘dispose’ of an asset that has increased in value. Also, you only pay Capital Gains Tax when the overall chargeable gains for the tax year are above a certain level called the ‘annual exempt amount’.
Capital Gains Tax rate and the annual exempt amount for trusts
The rate of Capital Gains Tax for the tax year 2008-09 (April 6 to April 5 the following year) is 18 per cent.
The annual exempt (tax-free) amount in 2008-09 for most trusts 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
Who pays Capital Gains Tax and when it may be due
There are different occasions when a trust may generate a Capital Gains Tax charge, and these will determine who has to pay.
Assets are transferred into a trust
In this situation, the person who makes the transfer - the settlor or transferor - pays. The exception is when the transferor makes a claim for Hold-over Relief, in which case the person who receives the asset will pay Capital Gains Tax when they sell or transfer the asset.
Trust assets are distributed from a trust (‘disposed of’)
In this case, those responsible for managing the trust - the trustees - usually pay. The main exception is where there is a bare trust, in which case the beneficiary is already ‘absolutely entitled’ to everything in the trust.
Trustees cease to be resident in the UK or cease to be liable to pay UK tax
If this occurs, the trustees pay Capital Gains Tax based on the market value immediately prior to the change in their residence status.
A beneficiary becomes ‘absolutely entitled’ to some or all of the assets in a trust
A person is ‘absolutely entitled’ to an asset in a trust if they have the exclusive right to direct the trustees on how to deal with it. In this case, someone may become absolutely entitled because they reach a certain age or the trust comes to an end. The trustees pay Capital Gains Tax based on the market value of the asset on the date the beneficiary becomes entitled.
Find out about calculating Capital Gains Tax and reliefs for trusts
Situations where Capital Gains Tax isn’t payable
There are a few situations where an asset is transferred to someone else but Capital Gains Tax does not apply.
Someone dies and leaves their assets to a beneficiary or trust
When a person dies and they leave their assets to someone, whether in a trust or not, there is no Capital Gains Tax to pay. The value of the asset for any future sale is set at the date of death. This is equally true for trustees or beneficiaries who inherit the asset through a will
Someone dies and an interest in possession comes to an end
This occurs in ‘interest in possession’ trusts - where a beneficiary has an immediate and absolute right to income from an asset held in trust. There is usually no Capital Gains Tax charge when an interest in possession comes to an end when the beneficiary dies.
Find out more about interest in possession trusts
Working out how much Capital Gains Tax is due
Capital Gains Tax is worked out for each tax year (which runs from 6 April one year to 5 April the following year). It is charged on the total of your taxable gains, after taking into account:
- relevant costs and reliefs that can reduce or defer gains
- allowable losses
- the annual exempt (tax-free) amount
The remaining amount is taxed at the current rate for Capital Gains Tax - 18 per cent.
Find out about calculating Capital Gains Tax and reliefs for trusts
Telling HMRC about capital gains made by a trust
As a trustee, you must tell HMRC about disposals the trust makes if either of the following applies in a tax year:
- the value of the disposal(s) exceeds eight times the trustees’ annual exempt amount
- the gains - after the deduction of losses - are greater than the trustees’ annual exempt amount
You do this by completing form SA905 Trust and Estate Capital Gains (the Capital Gains Tax supplementary pages of the Trust and Estate Tax Return).
Get form SA905 Trust and Estate Capital Gains and guidance notes
Getting HMRC to check the value of your asset
If you want HMRC to check the valuation you have made of an asset on which you have to pay Capital Gains Tax, you can use the form below. Send this into the Trusts Office that deals with your trust. If they agree with your valuation, they will not challenge your use of it in your Trust and Estate Tax Return.
Post-transaction valuation checks for capital gains
Find out which Trust Office deals with your trust
More useful links
Download HMRC Helpsheet 294 - ‘Trusts and Capital Gains Tax' (PDF 89K)
