6. Trusts and Capital Gains Tax

Capital Gains Tax is a tax on the profit (‘gain’) when something (an ‘asset’) that’s increased in value is taken out or put into a trust.

The Capital Gains Tax rate for trustees is 28%.

When Capital Gains Tax might be payable

When Capital Gains Tax is payable, who pays it depends on the situation.

If assets are put into a trust

Tax is paid by either:

  • the person selling the asset, although they might be able to reduce the tax they pay by claiming Hold-Over Relief
  • the person transferring the asset (the ‘settlor’)

If assets are taken out of a trust

The trustees usually have to pay the tax if they sell or transfer assets on behalf of the beneficiary.

There’s no tax to pay in bare trusts if the assets are transferred to the beneficiary.

Sometimes an asset might be transferred to someone else but Capital Gains Tax isn’t payable. This happens when someone dies and:

A beneficiary gets some or all of the assets in a trust

Sometimes the beneficiary of a trust becomes ‘absolutely entitled’ and can tell the trustees what to do with the assets, eg when they reach a certain age.

In this case, the trustees pay Capital Gains Tax based on the assets’ market value.

If trustees are no longer resident in the UK

If the trustees change and the new trustees aren’t resident in the UK, the old trustees pay Capital Gains Tax based on the market value of the assets immediately before the trust became non-resident.

The rules for non-resident trusts mean they might not have to pay Capital Gains Tax.

Working out total gains

Trustees need to work out the total taxable gain to know if they have to pay Capital Gains Tax.

Allowable costs

Trustees can deduct costs to reduce gains, including:

  • the cost of improving property or land to increase its value, eg building a conservatory (but not repairs or regular maintenance)
  • professional fees, eg for a solicitor or stockbroker

Tax reliefs

Trustees might be able to reduce or delay the amount of tax the trust pays if gains are eligible for tax relief.

Relief Description
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.

Tax-free allowance

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
5 April 2013 to 6 April 2014 £5,450 £10,900
5 April 2014 to 6 April 2015 £5,500 £11,000

If there’s more than one beneficiary, the higher allowance may apply even if only one of them is disabled.

The tax-free allowance may be reduced if the trust’s settlor has set up more than one trust (‘settlement’) since 6 June 1978.

There’s more detailed information about capital gains tax and self assessment for trusts.

Report gains to HMRC

If you’re the trustee, report any gains as part of your Trust and Estate Tax Return.

You’ll need to download and fill in form SA905 if you’re sending your tax return by post.

If you’re the beneficiary, you need to report and pay through a Self Assessment tax return.

The rules are different for reporting a loss.

If you need more help

There’s more detailed guidance on Capital Gains Tax.

Contact HMRC or get professional tax advice if you need help.