Trusts and Capital Gains Tax Explained

Capital Gains Tax may be due if the value of an asset increases and produces a profit (including assets taken out of - or put into - a trust).

The information in this section explains how trusts and Capital Gains Tax works and how to report realised 'gains' to HM Revenue and Customs (HMRC).

When is Capital Gains Tax Usually Payable?

You may need to pay Capital Gains Tax (CGT) after putting assets into a trust, after taking them out, or when the (either):

  • Beneficiary receives some (or all) of the trust assets.
  • Trustee(s) is no longer resident in the United Kingdom.

The person responsible for paying tax when assets go into a trust will be the one who sells it to the trust or the ‘settlor‘ (transferor).

Note: Transferring the assets held in a ‘bare trust‘ to the beneficiary (usually a child under the age of eighteen) means there would be no tax to pay.

As a rule, the trustee(s) must pay the tax after selling or transferring assets for the beneficiary (e.g. after taking them out of the trust).

It is not uncommon to transfer an asset to another person (e.g. when an ‘interest in possession trust‘ ends, such as when the named person dies). In this case, Capital Gains Tax would not be payable.

When a Beneficiary becomes ‘Absolutely Entitled’

Most beneficiaries who are children get ‘absolute entitlement’ when they reach the age of eighteen (18). Hence, they would get some (or all) of the assets held in the trust and would be able to give instructions to the trustees about managing them.

As a result, the trustee(s) would need to pay Capital Gains Tax (CGT) based on the market value of assets when the beneficiary received the entitlement.

CGT Rules for Non-Resident Trusts

The UK rules for non-resident trusts and Capital Gains Tax are a complex matter. Thus, it is best to get help with taxation from a legal professional (e.g. an accountant).

Working Out Total Taxable Gains

HMRC guidance explains the process of working out how much Capital Gains Tax is due in greater detail. Even so, some of the allowable costs that trustees can use to reduce the gains include:

  • Costs of a property (includes administration fees).
  • Fees for professional services (e.g. a solicitor, stockbroker).
  • Payments for improving land or property to increase its value. A typical example would be the construction of a conservatory (excluding the cost of repairs or regular maintenance).

Note: Another section contains more information about the current trusts and Income Tax rates for the United Kingdom.

Gains Eligible for Tax Reliefs

Business Asset Disposal Relief Trustee(s) would pay 10% CGT on any qualifying gains after selling assets used in a beneficiary’s business once it ends. Relief may also be available after they sell shares in a company where the beneficiary held a minimum of 5% of shares and voting rights.
Holdover Relief Trustee(s) would pay no tax if they transfer assets held in trusts to beneficiaries (other trustees may also qualify). The recipient would pay the tax after selling or ‘disposing of’ the assets (unless they also claim the relief).
Private Residence Relief Trustee(s) would pay no CGT after selling a property owned by the trust. It would need to be the main residence for someone who is allowed to live there – according to the rules of the trust.

Trusts Tax-Free Allowance

After you work out if you need to pay, Capital Gains Tax is due if the ‘total taxable gain’ is more than the Annual Exempt Amount (e.g. AEA is the tax-free allowance for the trust).

In the United Kingdom, the current tax-free allowance for a trust is:

The higher rate AEA allowance may still apply if there are multiple beneficiaries – even if only one is classed as a ‘vulnerable person’.

But, if the ‘settlor’ set up more than one trust (e.g. ‘settlements’) since the 6th of June 1978, HMRC may apply a reduction to the tax-free allowance.

Note: HMRC produces detailed guidance on Capital Gains Tax rates and allowances for previous years and how UK resident trusts are treated for CGT (using Self Assessment helpsheet HS294).

Reporting Gains to HM Revenue and Customs

Trustees must have an account to report and pay Capital Gains Tax on UK property (excluding a main home), no later than:

  • Thirty (30) days of selling the property (for a completion date between the 6th of April 2020 and the 26th of October 2021).
  • Sixty (60) days of selling the property (for a completion date since the 27th of October 2021).

Trustees need to use a trust and estate Self Assessment tax return (SA905) for reporting a sale (or transfer) of any other assets held in the trust. Another section explains more about the tax responsibilities for trustees.

Important: The rules differ if you make a loss on a chargeable asset because you can deduct the amount from gains made in the same tax year.

Related Help Guides

Note: The main section has detailed information about trusts and taxes and how they’re taxed by HMRC in the UK.

Trusts and Capital Gains Tax (CGT) Guide for United Kingdom