Basic principles of CGT for trusts

By Tolley in association with Paul Davies at DWF

The following Trusts and Inheritance Tax guidance note by Tolley in association with Paul Davies at DWF provides comprehensive and up to date tax information covering:

Basic principles of CGT for trusts
Introduction
Residence
Types of assets and calculation of gain
Base cost of trust assets
Deduction for the settlor’s IHT liability
Consideration on an actual disposal
Annual exemption
Planning issues ― annual exemption
Sub-funds
Vulnerable beneficiaries
Rate of tax
Reliefs

Introduction

The trustees of a settlement are treated as a single person for capital gains tax purposes: that is to say, the trust is treated as a separate and single taxable entity. Capital gains tax is charged when the trustees (as a body) make a chargeable disposal. Such a disposal may arise when trustees sell or transfer trust assets in the course of administration of the trust. However, in addition to these ‘actual disposals’ of assets, there are occasions when trustees are ‘deemed’ to have made a disposal and capital gains tax is charged accordingly. In summary, deemed disposals arise when the nature of entitlement to the assets changes. See the Deemed disposals guidance note. The same principles of calculation apply to both actual and deemed disposals.

Residence

If trustees (as a whole) are treated as UK resident, the trust is chargeable to capital gains tax on the disposal of assets wherever situated.

TCGA 1992, s 1A (1) (from 6 April 2019); TCGA 1992, s 1 (up to 5 April 2019)

If trustees (as a whole) are treated as non-resident, the trust is chargeable to capital gains tax only on the disposal of assets which are:

•situated in the UK and used in the trust’s UK branch or agency (ie for the purposes of a trade, profession or vocation in the UK),
•interests in UK land, or
•assets which derive at least 75% of their value from UK land (eg company shares) and the trust has a ‘substantial indirect interest’ in the land. This might be for example a 25% investment in a company holding UK land

TCGA 1992, s 1A (3) (from 6 April 2019); TCGA 1992, s 10, 14B (up to 5 April 2019)

If all of the trustees