HMRC updates guidance on trusts and capital gains

CGT might be payable when assets are put into or take out of a trust; a beneficiary gets some or all of the assets in a trust’; or if trustees are no longer resident in the UK.

According to the tax authority, trustees only have to pay CGT if the total taxable gain is above the trust’s tax-free allowance - called the annual exempt amount.

If a trust’s settlor has set up more than one trust (settlement), the tax-free allowance will be divided equally between the number of trusts, up to a maximum of 5. If there are 5 or more, the tax-free allowance would remain the same for each subsequent trust.

For example, in 2019 to 2020 a trusts tax-free allowance is £6,000. If a settlor has set up 2 trusts, each trust would get an equal tax-free allowance of £3,000.

If a settlor has set up 5 or more trusts, the exempt amount is capped at £1,200 per trust (10 or more, if for the benefit of a disabled person). Each trust would have a tax-free exemption of £1,200.

HMRC advised that this only affects trusts set up after 7 June 1978, unless it’s a trust for a disabled beneficiary, in which case it applies to trusts set up after 9 March 1981.

The tax authority added that trustees have an obligation to report to HMRC the disposals the trust makes, if they result in a liability in a tax year; all disposals the trust makes whether they result in a gain or a loss because the trust has been issued an SA return, unless the value of the disposals exceeds the annual exempt amount by 4 times; and if they’re liable to pay CGT.

This can be done by completing form SA905 Trust and Estate Capital Gains.

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