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The Capital Gains Tax calculation

You work out Capital Gains Tax by:

1. working out the gain or loss for each item you sell, transfer or otherwise dispose of, taking off any allowable expenses and reliefs
   
2. taking away the trusts total allowable losses from the total gains - to arrive at the net gain or loss
   
3. taking off any trust losses brought forward from an earlier year
   
4. taking off the trustees' annual exempt amount

There's more information about each of these four steps, covered in order below.

Read more about the Capital Gains Tax calculation in the guidance notes for form SA905 'Trust and Estate Capital Gains'.

• Form SA905 and guidance notes Opens new window

Allowable expenses

Trustees can deduct certain expenses when they work out the trust's capital gains. The two most common types of expense are:

• the cost of improving property or land to increase its value when it's sold or transferred - like building a conservatory
  
• the costs involved in buying and transferring or selling the item - like having a property valued before selling it or paying solicitor's or stockbroker fees
  

The types of expense that are allowed depend on the type of asset.

You can read more about allowable expenses on page 11 of the guidance notes to form SA905.

• Form SA905 Notes on trust and estates capital gains Opens new window

Reliefs

There are several different reliefs available that trustees may be able to use to reduce the trust's Capital Gains Tax.

Hold-over Relief

Hold-over Relief lets trustees transfer assets to beneficiaries - or other trustees in certain circumstances - without paying Capital Gains Tax. The recipient usually pays the tax when they sell or transfer the asset.

The rules for Hold-over Relief are quite complicated and they vary depending on what’s being transferred. Follow the links below for more information.

Helpsheet 295 ‘Relief for Gifts and Similar Transactions’ has a form at the end for making a claim.

• Helpsheet 295 Relief for Gifts and Similar Transactions Opens new window

Private Residence Relief

This relief exempts people from Capital Gains Tax when they sell or transfer their main home. For trustees it applies to any property - including up to half a hectare of land - that's owned by the trustees. The property must also be the main residence for someone entitled to occupy it under the trust's terms.

Trustees who transfer or dispose of this type of property should complete the SA905, Trust and Estate capital gains supplementary pages, to claim this relief.

• SA905 Trust and Estate capital gains supplementary pages Opens new window

• Helpsheet 283 Private Residence Relief Opens new window

Entrepreneurs' Relief

Entrepreneurs' Relief lets individuals claim tax relief on capital gains up to a lifetime limit when they:

• sell all or part of a business
  
• dispose of assets when the business stops trading
  
• sell shares in their personal company if they're an officer (like a managing director) or employee
  

Trustees can claim this relief when a trust sells or transfers:

• shares in a beneficiary's personal company - but only if the beneficiary is an officer or employee of the company
  
• assets used in the beneficiary's business - but only if the business is no longer operating and the asset was used for at least one year out of the last three before the business stopped operating
  

The trustees and the beneficiary must make a joint claim. Each beneficiary has a limit of £10 million. This limit is reduced by any Entrepreneurs' Relief that the beneficiary has claimed on the sale or transfer of their own assets. If the trustees claim relief it will reduce the amount of the lifetime limit available to the beneficiary for any future claims made for sales or transfers of their own assets.

If the trustees qualify for Entrepreneurs’ Relief any qualifying gains up to the available lifetime limit will be charged to Capital Gains Tax at ten per cent.

• Capital Gains Tax reliefs for business assets (Entrepreneurs' Relief) Opens new window

Allowable losses

As well as paying tax on gains, trustees must work out any losses from the sale or transfer of assets. They must offset these against taxable gains. If losses in any tax year are higher than that year's gains, they are carried forward and deducted from the next year's gains.

Trusts have a tax-free capital gains allowance each year - the 'annual exempt amount'. If losses brought forward reduce the capital gains of the year to this level, anything left is carried forward to the next year. You can find out more about the annual exempt amount in the section below.

Example

In 2008-09 a trust has capital gains of £12,000 and allowable losses of £15,000. The trustees take the losses away from the gains, leaving no chargeable gains for the year. There's no Capital Gains Tax to pay and unused losses of £3,000 to carry forward to 2009-10.

In 2009-10 the trust has gains of £7,000 and no losses. The trustees only use £1,950 of the previous year's losses to reduce the gain to the level of the annual exempt amount - £5,050 for 2009-10. They still have £1,050 of unused losses left to carry forward to 2010-11.

Recording allowable losses

You record losses, including those carried forward from previous years, on form SA905 'Trust and Estate Capital Gains'.

• Form SA905 Trust and Estate Capital Gains and guidance notes Opens new window

The annual exempt amount

The annual exempt amount lets individuals and trustees make some capital gains without paying tax.

For most trustees, the annual exempt amount for the 2012-13 tax year is £5,300. An exception to this is a trust set up for a beneficiary who is disabled. In these cases, the annual exempt amount is £10,600 - the same as for individuals.

If the person who created the trust - the settlor - sets up more than one UK resident trust the trustees must divide the annual exempt amount by the number of trusts. This includes trusts of insurance policies. If they have more than five, an exempt amount of £1,060 applies to each. 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.

• Introduction to trusts and Capital Gains Tax

• Bare trusts

• Capital Gains Tax rates and thresholds for earlier years Opens new window

More useful links

• Capital Gains Tax reliefs on shares Opens new window

• How to pay Self Assessment Opens new window

• Trust and Estate Tax Return, supplementary pages and help notes Opens new window

Useful contacts

• Contact HMRC Trusts & Estates