Use this guidance to help you decide if Capital Gains Tax is due and how much you need to pay.
When Capital Gains Tax might be payable
Capital Gains Tax might be payable when:
- assets are put into a trust
- assets are taken out of a trust
- a beneficiary gets some or all of the assets in a trust
- trustees are no longer resident in the UK
Who has to pay the tax and when it must be paid is detailed in the Trusts and taxes guide.
When Capital Gains Tax isn’t payable
In some situations an asset may be transferred to someone else but Capital Gains Tax is not payable.
Someone dies and leaves their assets to a beneficiary or trust
When a person dies and they leave their assets to someone, whether they’re in a trust or not, there’s no Capital Gains Tax to pay.
If the asset is ‘disposed of’ at a later date, and has increased in value since the date of death, Capital Gains Tax may be due.
This applies to either trustees or beneficiaries who inherit the asset under the:
- terms of a will
- rules of inheritance that apply in England and Wales when there’s no will
Someone dies and an interest in possession comes to an end
This happens in interest in possession trusts - where a beneficiary has an immediate and absolute right to income from an asset held in trust. There’s usually no Capital Gains Tax to pay when the beneficiary dies and their interest in possession comes to an end.
Work out how much Capital Gains Tax is due
Capital Gains Tax on trusts is worked out for each tax year (which runs from 6 April one year to 5 April the next). You can work out how much you need to pay by following 4 steps:
- Work out the gain or loss for each item you sell, transfer or otherwise dispose of, taking off any allowable costs and reliefs.
- Take off the trusts’ total allowable losses from the total gains - to arrive at the net gain or loss.
- Factor in trust losses brought forward from earlier years.
- Take off the trustees’ tax-free allowance.
The remaining amount is taxed at the current rate of Capital Gains Tax for trustees in the 2017 to 2018 tax year:
- 20% for trustees or for personal representatives of someone who has died (not including residential property)
- 28% for trustees or for personal representatives of someone who has died for disposals of residential property
The rates and thresholds for earlier years are different.
There’s more guidance in the notes for form SA905 Trust and Estate Capital Gains.
Trustees can deduct certain expenses when they work out the trust’s capital gains. The 2 most common types of expense are:
- 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 or stockbroker fees
The types of expense that are allowed depend on the type of asset. You can read more about allowable expenses on page 11 of the guidance notes to form SA905.
There are several different reliefs available that trustees may be able to use to reduce the trust’s Capital Gains Tax.
|Private Residence Relief||Trustees pay no Capital Gains Tax when they sell a property the trust owns. It must be the main residence for someone the trust says can live there.|
|Entrepreneurs’ Relief||Trustees pay 10% Capital Gains Tax on qualifying profits if they sell assets used in the beneficiary’s business, which has now ended. They may also get relief when they sell shares in a company where the beneficiary had at least 5% of shares and voting rights.|
|Hold-Over Relief||Trustees pay no tax if they transfer assets to beneficiaries (or other trustees in some cases). The recipient pays tax when they sell or dispose of the assets, unless they also claim relief.|
As well as paying tax on gains, trustees work out any losses from the sale or transfer of assets. They must offset these against taxable gains. You record losses, including those carried forward from previous years, on form SA905 Trust and Estate Capital Gains.
In 2008 to 2009 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 2009 to 2010.
In 2009 to 2010 the trust has gains of £7,000 and no losses. The trustees only use £1,950 of the previous year’s losses to reduce the gain to the level of the annual exempt amount - £5,050 for 2009 to 2010. They still have £1,050 of unused losses left to carry forward to 2010 to 2011.
Trustees only have to pay Capital Gains Tax if the total taxable gain is above the trust’s tax-free allowance (called the annual exempt amount).
|Period||Tax-free allowance||Tax-free allowance if the beneficiary is disabled|
|6 April 2014 to 5 April 2015||£5,500||£11,000|
|6 April 2015 to 5 April 2016||£5,550||£11,100|
|6 April 2016 to 5 April 2017||£5,550||£11,100|
|6 April 2017 to 5 April 2018||£5,650||£11,300|
|6 April 2018 to 5 April 2019||£5,650||£11,700|
If a trust’s settlor has set up more than one trust (settlement), the tax-free allowance will be divided equally between the number of trusts.
This is capped at a minimum exempt amount of £1,170 per trust, so if there are 5 or more trusts (10 or more, if for the benefit of a disabled person) they’ll each have a tax-free exemption of £1,170.
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.
Get HM Revenue and Customs (HMRC) to check the value of your asset
You can ask HMRC to check your valuation of an asset you have to pay Capital Gains Tax on. Use form CG34 Post-transaction valuation checks for capital gains.
If they agree with your valuation, they’ll not challenge your use of it in your Trust and Estate Tax Return.
Tell 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 disposals exceeds the Annual Exempt Amount by 4 times (£45,200 for the 2017 to 2018 tax year) and you’ve been issued with a Trust and Estate Tax Return
- you’re liable to pay Capital Gains Tax
Do this by completing form SA905 Trust and Estate Capital Gains.