FAQ's - Trustees

Q. Will I be liable to Capital Gains?

A. Trustees are liable to tax, at the rate applicable to trusts, on any capital gains above an annual exempt amount arising for

• Interest in possession trusts
• Discretionary trusts
• Accumulation and maintenance trusts, and
• Mixed trusts.

The beneficiaries are not taxed on any trust gains and do not get credit for tax paid by the trustees.

The annual exempt amount is normally equal to half the annual exempt amount for an individual. Trustees of trusts for the benefit of people who are mentally handicapped or in receipt of certain specified allowances might be entitled to the whole annual exempt amount for an individual.

There are special rules that apply from 2004/2005 to trusts with 'Vulnerable beneficiaries'. A vulnerable beneficiary can be either someone who is mentally or physically disabled or a child below the age of 18 who has lost one or both parents through death.

Where there is more than one trust made by the same settlor, the annual exempt amount is reduced proportionally on the basis of the number of settlements made since 6 June 1978 and still in existence.

Help sheet HS294 'Trusts and Capital Gains Tax' (PDF 80K) explains the rules about the annual exempt amount further, and also contains more information about the special rules that apply where the settlor 'retains an interest' in the trust. You can get a hard copy by calling our Orderline.