UK resident beneficiary: tax year 2008-09 onwards: example tax year 2010-11
The trustees’ net gains for the year 2010-11 are £42,100. £17,000 of these gains accrued before 23 June 2010 and are taxed at 18 per cent. £25,100 of these gains accrued on or after 23 June 2010 and are taxed at 28 per cent. The beneficiary has no personal gains.
The trustees’ annual exempt amount is £5,050. The beneficiary has an annual exempt amount of £10,100. The beneficiary’s taxable income for 2010-11 after deductions and the personal allowance is £27,400.
First calculate TLVB. This is the amount of the beneficiary’s personal liability to CGT. This is £nil.
Second calculate TLVA. This is the amount of CGT the beneficiary would have to pay if the trustees’ qualifying gains also accrued to them in addition to any personal gains. The beneficiary is treated as having £17,000 gains which accrued before 23 June 2010 and £25,100 gains which accrued on or after 23 June 2010. The beneficiary’s annual exempt amount is set against the £25,100 gains taxed at the higher Capital Gains Tax rate, £25,100 - £10,100 = £15,000. The beneficiary’s taxable income of £27,400 is £10,000 less than the upper limit of the basic rate tax band for 2010-11, £37,400. The first £10,000 of the £15,000 gains are taxed at 18% = £1,800 and the remaining £5,000 at 28% = £1,400. The £17,000 gains which accrued before 23 June 2010 are taxed at 18% = £3060. TVLA is £1,800 + £1,400 + £3,060 = £6,260.
Third calculate VQTG. This is TLVA - TLVB that is £6260 - £0 = £6,260.
Fourth calculate TQTG. This is the trustees’ liability on their chargeable gains. The annual exempt amount, £5050, is set against the £25,100 gains chargeable at 28 per cent giving tax chargeable of £5,614. The balance of the gains, £17,000 is taxed at 18 per cent giving tax chargeable of £3,060. TQTG is £5,614 + £3,060 = £8,674.
Finally reduce TQTG by VQTG to calculate the relief due to the trustees. This is £8,674 - £6,260 = £2,414. So the trustees liability is £8,674 - £2,414 = £6,260. This is the tax that would be due if the trust gains accrued to the beneficiary.