The 2016 Budget report – Trust taxation

Synopsis: This is the extract from our 2016 Budget report covering trust taxation

IMPORTANT GUIDANCE

When reading a topic in the Information Library you should always click the “Related Bulletins” button within that topic to be sure that you have the latest information on the subject you are researching.

Especially in the time between the Budget and Finance Act you should always check the Budget Bulletin for that year to discover the latest proposals.

 

Budget announcements

There were no announcements as such in relation to trusts. However, the changes to the CGT rates affect trustees.

When trustees pay CGT, currently the rate is 28%. From 6 April 2016 this rate will reduce to 20% except for carried interest and for chargeable gains on residential property (i.e. property other than that occupied by a beneficiary where the principal residence relief may be available). The 28% rate will also remain for ATED related chargeable gains.

The annual CGT exemption for trusts will be £5,550 in 2016/17. This will be diluted according to the number of trusts created by the same settlor but will never be less than £1,110.

These changes will take effect for disposals made on or after 6 April 2016.

Planning around the Budget announcements

Trustees who are about to dispose of a trust asset which will give rise to CGT at the higher rate should consider waiting until 6 April 2016 to benefit from the lower rate.

Trusts offer an investor a number of tax advantages and one of those will be as a means of obtaining an additional one half CGT annual exemption – even in cases where the settlor’s spouse and/or minor children are beneficiaries under the trust. In the case of a bare trust, it is possible to use the individual beneficiary’s full £11,100 annual exemption. Collective investments geared towards capital growth will frequently be a good way to utilise the trustee’s (or individual beneficiary’s) annual exemption in future years.

Previously announced changes for 2016/17

There were no prior announcements for the 2016/17 tax year.

 

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