Capital Gains Tax for Trusts

Trusts can hold a wide range of assets, from property to investments, and when these assets increase in value, Capital Gains Tax (CGT) may be due. Understanding when and how CGT applies to trusts is important for trustees managing trust assets, as the rules differ from persona...

When Capital Gains Tax applies to trusts

Capital Gains Tax may be payable in three main situations:

When assets are put into a trust
When assets are taken out of a trust
When a beneficiary receives some or all of the trust's assets

The trustees (the people legally responsible for managing the trust) are usually responsible for paying the tax and reporting it to HMRC.

When no Capital Gains Tax is due

There are important situations where CGT does not apply, even when assets change hands.

Death of the settlor or beneficiary

When someone dies and leaves assets to beneficiaries or to a trust, there is no Capital Gains Tax to pay at that point. This applies whether the assets pass under the terms of a will or under the rules of inheritance when there is no will.

However, if the asset is later sold, transferred or disposed of and has increased in value since the date of death, CGT may then be due. This applies to both trustees and beneficiaries who inherit the asset.

End of an interest in possession

In interest in possession trusts—where a beneficiary has an immediate and absolute right to income from an asset held in trust—there is usually no Capital Gains Tax to pay when the beneficiary dies and their interest in possession comes to an end.

Different types of trusts

Trusts are managed by trustees on behalf of beneficiaries, following instructions set out by the settlor (the person who created the trust). The main types include:

Bare trusts: Assets held for a beneficiary who has the right to all capital and income once they reach 18 (or 16 in Scotland)
Interest in possession trusts: Beneficiaries receive all trust income as it arises, though they may not own the underlying assets
Discretionary trusts: Trustees decide what gets paid out, to whom, and when
Accumulation trusts: Trustees can add income to the trust's capital rather than paying it out

All types of trust are subject to CGT, though the specific rules may vary.

Tax-free allowances for trusts

Trustees only pay Capital Gains Tax if the total taxable gain exceeds the trust's annual exempt amount (the tax-free allowance). For the 2025/26 tax year, this is:

£1,500 for most trusts
£3,000 for trusts with a disabled beneficiary

These allowances are significantly lower than the personal CGT allowance available to individuals.

Multiple trusts

If a settlor has set up more than one trust, the tax-free allowance is divided equally between them, up to a maximum of five trusts. If there are five or more trusts, the allowance is capped at £1,200 per trust (or £2,400 for trusts with disabled beneficiaries). This rule only affects trusts set up after 7 June 1978 (or after 9 March 1981 for disabled beneficiary trusts).

For example, if a settlor created three trusts in the 2025/26 tax year, each trust would receive a tax-free allowance of £500 (£1,500 divided by three).

Working out the Capital Gains Tax bill

Capital Gains Tax on trusts is calculated for each tax year (6 April to 5 April). Trustees follow these steps:

1. Work out the gain or loss for each asset sold, transferred or disposed of, deducting allowable costs and reliefs

2. Subtract the trust's total allowable losses from total gains to arrive at the net gain

3. Factor in trust losses brought forward from earlier years

4. Deduct the trustees' tax-free allowance

The remaining amount is taxed at 24%—the rate of Capital Gains Tax for trustees in 2025/26.

Allowable costs and expenses

Trustees can deduct certain expenses when calculating capital gains. The two most common are:

The cost of improvements that increase an asset's value when sold—such as building a conservatory on a property
Costs involved in buying, selling or transferring the asset—such as property valuations, solicitor fees or stockbroker fees

The types of expense allowed depend on the asset type.

Reliefs available to trustees

Several reliefs can reduce a trust's Capital Gains Tax liability:

Private Residence Relief: Trustees pay no CGT when selling a property owned by the trust if it is the main residence of someone the trust allows to live there.

Business Asset Disposal Relief: Trustees pay a reduced rate of CGT on qualifying profits when selling assets used in a beneficiary's business that has now ended. The rate is 14% for disposals between 6 April 2025 and 5 April 2026, rising to 18% from 6 April 2026 (it was 10% before 5 April 2025).

Hold-over Relief: Trustees pay no tax when transferring assets to beneficiaries (or other trustees in some cases). The recipient may pay tax when they later sell or dispose of the asset.

Allowable losses

Trustees must calculate losses from the sale or disposal of assets and offset these against taxable gains. Losses can be carried forward to future tax years.

Example: In 2024/25, a trust has capital gains of £12,000 and allowable losses of £17,000. The trustees deduct the losses from the gains, leaving no chargeable gains. There is no CGT to pay, and unused losses of £5,000 carry forward to 2025/26.

In 2025/26, the trust has gains of £7,000 and no new losses. The trustees use £4,000 of the previous year's losses to reduce the gain to the annual exempt amount of £3,000. They have £1,000 of unused losses left to carry forward to 2026/27.

Reporting and paying Capital Gains Tax

For UK property disposals with a completion date on or after 27 October 2021, trustees must report and pay Capital Gains Tax within 60 days of selling the property.

For other assets, trustees must report disposals in a Trust and Estate Tax Return.

Trustees can also ask HMRC to check their valuation of an asset using form CG34. If HMRC agrees with the valuation, they will not challenge its use in the Trust and Estate Tax Return.

Sources

This article provides general guidance based on current HMRC rules. For advice specific to your situation, speak to your accountant.