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 of or put into a trust.

When Capital Gains Tax might be payable

If assets are put into a trust

Tax is paid by either the person:

  • selling the asset to the trust
  • 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 an ‘interest in possession’ ends.

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 when the beneficiary became entitled to them.

Non-UK resident trusts

The rules for Capital Gains Tax on non-UK resident trusts are complicated. You can get help with your 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 the property (including any administration fees)
  • professional fees, eg for a solicitor or stockbroker
  • the cost of improving property or land to increase its value, eg building a conservatory (but not repairs or regular maintenance)

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 allowed to live there under the rules of the trust.
Entrepreneurs’ Relief Trustees pay 10% Capital Gains Tax on qualifying gains if they sell assets used in a 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).

The tax-free allowance for trusts is:

  • £5,550
  • £11,100 if the beneficiary is disabled

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

The allowance has been the same since 6 April 2015. See tax-free allowances for previous years.

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.