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HMRC internal manual

Capital Gains Manual

Trusts: outline of CGT for trusts: trusts modernisation

In December 2003 Ministers commissioned a project of ‘trust modernisation’ for CGT and IT, making use of a substantial consultation procedure. One of the principal objectives was to harmonize definitions between IT and CGT. The main changes for CGT were:

  • The Rate Applicable to Trusts (RAT) was increased to 40% from 6 April 2004
  • A new régime for trusts for vulnerable beneficiaries was introduced so that the overall liability was based on the position of the vulnerable beneficiary from 6 April 2004
  • A new stand alone definition of settlor for CGT was introduced for most purposes, although the actual change was very small, from 6 April 2006
  • The residence test for trustees was harmonized with the existing one for IT and the special treatment of professional trustees was abolished, both from 6 April 2007
  • The option for a ‘sub-fund’ to be treated as a separate settlement, on the making of the appropriate election was introduced, from 6 April 2006.

Other major changes to IT and IHT were introduced at the same time. Apart from the first bullet above, which was enacted in Finance Act 2004, and the special treatment for vulnerable beneficiaries which was enacted retrospectively in Finance Act 2005, the changes to CGT were enacted in Finance Act 2006.

Finance Act 2006 also introduced a major reform of the way in which trusts are dealt with for IHT. This had implications for CGT which are discussed at appropriate places in this Manual. It was not part of the modernisation process.

Finance Act 2008 introduced a further set of major reforms. For individuals, personal representatives and trustees the rate of CGT is 18% under newly worded TCGA1992/S4. At the same time indexation was abolished except for corporates and taper was abolished.