3 - CGT (Trusts)

Question 1

Who is responsible for CGT in a trust

Answer 1

Trustees

Question 2

What makes a UK-resident trust, a UK resident-trust?

Answer 2

At least one trustee is UK resident

Question 3

How many discretionary trusts would need to be set up by a single settlor since 6 June 1978 if the annual exemption for each trust in tax year 2023/24 is £750?

Answer 3

4

Question 4

How many discretionary trusts would need to be set up by a single settlor since 6 June 1978 if the annual exemption for each trust in tax year 2023/24 is £600?

Answer 4

5

Question 5

How many discretionary trusts would need to be set up by a single settlor since 6 June 1978 if the annual exemption for each trust in tax year 2023/24 is £1,000?

Answer 5

3

Question 6

How many discretionary trusts would need to be set up by a single settlor since 6 June 1978 if the annual exemption for each trust in tax year 2023/24 is £1,500?

Answer 6

2

Question 7

Why might the settlor find themselves with a CGT liability upon creation of a trust?

Answer 7

Creation of a trust is a disposal at market value by the settlor

Question 8

What is the rate of CGT in a trust?

Answer 8

CGT on trust gains is 20%

Unless the asset is not a PPR of a beneficiary, in which case the rate is 28%.

Question 9

How is the capital gain figure arrived at on disposals in a trust?

Answer 9

Difference between the sale proceeds and their cost or value when acquired by the trust.

Question 10

What is the annual exempt amount of CGT on trusts?

Answer 10

Annual exemption is usually 50% of what an individual is entitled to; currently £6,000 for individuals and £3,000 for trusts.

Question 11

Is CGT holdover relief available in an accumulation and/or maintenance trust, if the beneficiary had a prior right to the income, when reaching 18?

Answer 11

No, but the trustees may be able to hold over the gains if the beneficiary had no prior right to the income

Question 12

When might a trust for a disabled person qualify for the full £6,000 annual exemption?

Answer 12

When the trusts for the vulnerable tax treatment does not apply.

Question 13

What is the capital gains rate for trusts

Answer 13

the tax due on trust gains is 20% unless the asset in question is residential property that is not the main residence of a beneficiary, in which case the rate is 28%

Question 14

A trust that is subject to the special treatment due to trusts for the vulnerable is essentially taxable on gains at the rate(s) applicable to the beneficiary. What does this mean for trustee in the rate they would actually pay?

Answer 14

This means that the trustees can claim a reduction in their CGT liability based on the difference between the CGT that the beneficiary would have paid and the CGT that is due on
them as trustees.

Trustees generally pay CGT at the higher rates of 20% (or 28% for residential gains), so any amount of gain that would fall within the beneficiary’s basic rate will be taxed at 10% or 18%
rather than the higher rates.

Question 15

What are the CGT rates for disposals made by the trustees in a life interest or interest in possession trust?

Answer 15

20 and 28%

Question 16

When the life tenant of a pre-March 2006 trust dies, there is usually no CGT on the trustees from any gains starting at date of acquisition and market value on death. In what circumstance might there be CGT however?

Answer 16

When the life tenant made a gift and used CGT holdover relief. Therefore, the gains between acquisition and transfer ARE liable to CGT (20 or 28%), but the part between transfer and death is not.

Question 17

When might the trustees be able to claim PRR exemption (also known as ‘main residence exemption’) from CGT on a later sale of the trust property?

Answer 17

When the trustees allow a beneficiary to occupy a property belonging to the trust as their main residence.