A Comprehensive Guide for Effective Wealth Management

Not a day goes by, literally, where I don’t look at trusts. Yes although Family Investment Companies have become extremely popular over the last few years for multiple reasons I shall outline another time, trusts are still rife in practice.

Whether families are setting up trusts now (most commonly I deal with discretionary trusts) or looking at trusts set up over a decade ago, they still play a key role in both bloodline and inheritance tax planning.

However, as all things tax, care must be taken, tax implications must be considered and ultimately, professional advice must be sought. That’s where we come in to assist.

Saying that, I recently encountered a few cases where the Capital Gains Tax (CGT) angle had to be delved into – hence the below for your ‘leisure’ and educational reading.

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CGT when gifting assets INTO trust

Assets transferred into a trust during one’s lifetime, excluding cash gifts or the assignment of investment bonds, will constitute a disposal for Capital Gains Tax (CGT) purposes.

Unless the settlor chooses to defer the gain through an election commonly known as ‘holdover relief’, they will be responsible for any gains arising. This is effectively market value at point of transfer less base cost. Just as if it’s a normal disposal to anyone (or entity).

Holdover relief postpones the gain’s taxation until the trustees sell the assets or transfer them to a beneficiary. Holdover relief is usually available because transferring assets to a trust also triggers an Inheritance Tax (IHT) chargeable lifetime transfer. For those in the know, I’m talking about s.260 TCGA 1992.

However, holdover relief is not an option for trusts where the settlor, their spouse/civil partner, or their minor child can benefit (referred to as ‘settlor interested’ trusts – DEFINITELY a topic for another day as typing this at 02:02am LOL). 🥱

Assets transferred to a trust upon the settlor’s death are typically not subject to CGT. The trustees benefit by acquiring these assets at their market value at the date of death.

During the life of the trust

During the trust’s existence, if trustees sell trust assets (for example stocks or property), gains are computed similarly to individuals and taxed at CGT trust rates (20% or 28% for residential property). Trustees are entitled to half the individual annual CGT exempt amount, shared equally between trusts created by the same settlor, with a minimum of one fifth of the trust exemption.

Trustees can also seek Principal Private Residence (PPR) relief on the sale of residential property occupied by a beneficiary as their primary residence.

Final 2am comments

Our tax advisory services continue to be popular due to the value we are bringing to our clients. Not just saving tax and the bare minimums, but around actually making a positive impact to their lives.

Our clients include Ultra High Net Worths and HNWs, business owners, property landlords and investors as well as entrepreneurs and digital nomads. We assist individuals and families.

We also work very closely with professional intermediaries such as accountants, lawyers, wealth managers and trustees.

Feel free to get in contact and as always, happy to get on a ‘no strings attached’ phone call to assess how we can collaborate our energies.

DM or: omar@aswatax.co.uk

Hope you found my content insightful.


Omar Aswat is a Chartered Tax Advisor and the Founder of Aswatax

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