Capital Gains Tax in Trusts UK (2026): CGT Rates, Annual Exempt Amount, and Holdover Relief

Trusts pay CGT at different rates from individuals. The rates for 2026/27 (applying to disposals from 30 October 2024 onwards, following the Autumn Budget 2024 changes) are: (1) TRUST CGT RATES (2026/27): (a) RESIDENTIAL PROPERTY: 24% (this was already the higher rate applicable to residential property gains; unchanged from the Budget 2024 announcement which did not alter the residential rate from the position after 6 April 2024); (b) OTHER ASSETS (non-residential property, shares, business assets): 24%; Note: the Autumn Budget 2024 increased CGT rates for INDIVIDUALS — bringing the higher rate on non-residential assets to 24% (from 20%), effective from 30 October 2024. Trusts were already at 28%/20% before this change; from 30 October 2024, all trust assets (both residential and non-residential) are taxed at 24%; (2) COMPARISON WITH INDIVIDUALS (2026/27): (a) basic-rate taxpayer individuals: 18% on residential property; 18% on other assets; (b) higher/additional rate taxpayer individuals: 24% on residential property; 24% on other assets; (c) trusts: 24% on all assets (same rate as higher-rate taxpayers); (3) BARE TRUSTS: in a bare trust, the beneficiary is absolutely entitled to the trust assets. The gain is treated as the BENEFICIARY'S gain — not the trustees' gain. The beneficiary's own CGT rates and annual exempt amount apply; (4) INTEREST IN POSSESSION TRUSTS: trustees of an IIP trust pay CGT at the trust rate (24%) on any gain realised on a trust asset. The life tenant does not pay CGT on the trust's gains — unless the specific asset is identified as theirs under the IIP; (5) NOTE ON BUSINESS ASSET DISPOSAL RELIEF (BADR): BADR (formerly Entrepreneurs' Relief) is NOT generally available to trustees. BADR is available to qualifying INDIVIDUALS on gains on the disposal of business assets — not trusts. An individual beneficiary of a trust who is actively involved in a business may in some circumstances qualify, but this is complex.

The CGT annual exempt amount (AEA) for trusts in 2026/27 is £1,500 — exactly half of the individual AEA: (1) TRUST AEA (2026/27): £1,500. Gains up to this amount in a trust in a tax year are free from CGT; (2) INDIVIDUAL AEA (2026/27): £3,000. The trust AEA is always fixed at half the individual AEA; (3) SPLITTING BETWEEN TRUSTS FROM THE SAME SETTLOR: where the SAME SETTLOR has created multiple trusts, the £1,500 trust AEA is SPLIT BETWEEN ALL TRUSTS settled by that settlor. With two trusts, each gets £750. With three, each gets £500. There is a minimum of £300 per trust (regardless of how many trusts there are); (4) DIFFERENT SETTLORS — EACH TRUST GETS FULL AEA: if two trusts were settled by DIFFERENT SETTLORS, each trust gets the full £1,500 AEA independently; (5) COMPARISON WITH INCOME TAX STANDARD RATE BAND: the AEA splitting rule mirrors the income tax standard rate band splitting for trusts from the same settlor — both are anti-avoidance measures to prevent a settlor creating multiple trusts to multiply the benefit of per-trust allowances; (6) CARRY FORWARD: unlike some other allowances, the unused CGT AEA CANNOT be carried forward — any unused AEA in a tax year is simply lost; (7) TRUSTS THAT AROSE ON DEATH: where a trust arises under a will (testamentary trust), the settlor is the deceased testator. Each testamentary trust typically gets the full £1,500 AEA unless the testator created multiple lifetime trusts as well. In practice, most testamentary discretionary trusts operate with the full £1,500 AEA.

Holdover relief (also known as 'gift hold-over relief') under TCGA 1992 s.260 allows the CGT that would otherwise arise on a chargeable disposal to be DEFERRED — 'held over' — when assets are given away without full consideration: (1) HOW HOLDOVER WORKS: when holdover relief is claimed, the donor (or settlor, or trustees) does NOT pay CGT on the gain at the time of the disposal. Instead: (a) the DONEE (recipient, or new trustees, or beneficiary) takes the asset at a REDUCED base cost — equal to the donor's original base cost (i.e. the gain is embedded in the asset); (b) when the donee later disposes of the asset, they pay CGT on the full gain from the original acquisition (including the held-over portion); (2) WHEN HOLDOVER UNDER S.260 APPLIES FOR TRUSTS: s.260 holdover applies to qualifying CHARGEABLE LIFETIME TRANSFERS (CLTs) — which include: (a) the SETTLEMENT of assets into a DISCRETIONARY TRUST (a CLT for IHT; s.260 holdover can be claimed); (b) the APPOINTMENT of assets OUT of a discretionary trust to a beneficiary (where IHT exit charges arise or could arise); (c) settlement into a trust where IHT is actually charged (periodic or exit charge). A settlement into a BARE TRUST or ABSOLUTE TRUST for a non-settlor is a PET for IHT — it is NOT a CLT, so s.260 holdover does NOT apply (unless BADR or s.165 applies); (3) S.165 HOLDOVER — BUSINESS ASSETS: TCGA 1992 s.165 provides holdover relief for gifts of BUSINESS ASSETS — regardless of whether IHT is charged. Business assets include shares in trading companies, business assets used in a trade, and agricultural property. For business asset settlements into trusts, s.165 holdover applies even for PET settlements; (4) JOINT ELECTION: holdover relief requires a JOINT ELECTION — signed by both the person making the disposal AND the trustees (or donee). Both parties must agree to the holdover. HMRC form HS295 is used; (5) CLAWBACK: holdover is clawed back if the donee emigrates (becomes non-UK resident) within 6 years of the disposal — a deemed disposal at market value arises under TCGA 1992 s.168.

When assets are settled into a trust ON DEATH (via a will or intestacy), the CGT rules are fundamentally different from lifetime settlements: (1) THE DEATH 'FREE STEP-UP' (TCGA 1992 s.62(1)): on death, assets are treated as acquired by the personal representatives (and subsequently by the beneficiaries or trustees) at MARKET VALUE at the date of death. The deceased's acquisition cost is effectively wiped out — the beneficiaries inherit a fresh, high base cost equal to the probate value. This is often called the 'free step-up' or 'CGT uplift on death'. There is NO CGT charge on death itself; (2) WILL TRUSTS — ASSETS PASS AT PROBATE VALUE: when assets from the estate are settled into a will trust (e.g. a discretionary trust created under the will), the trustees take the assets at the PROBATE (date of death) value — not the deceased's acquisition cost. Any gain built up during the deceased's lifetime is extinguished. The trust starts with a fresh CGT base; (3) SUBSEQUENT GAINS IN THE TRUST: once assets are in the will trust, any FURTHER gain above the probate value will be subject to CGT at the trust rate (24%) when the trust disposes of the asset. The gain is measured from the probate value (the trust's base cost) to the disposal proceeds; (4) HOLDOVER RELIEF NOT NEEDED AT DEATH — S.62(6): because death automatically resets the CGT base cost, holdover relief is not needed for will trust settlements. However, TCGA 1992 s.62(6) applies where assets are REDIRECTED from the estate to a trust via a DEED OF VARIATION — the varied gift is treated as having been made by the deceased under their will, so the CGT step-up at death still applies; (5) DEED OF VARIATION AND CGT: a deed of variation made within two years of death under IHTA 1984 s.142 also has CGT effect under TCGA 1992 s.62(6) — provided the deed includes the appropriate statements. The redirected asset passes to the trust at probate value.

Principal private residence (PPR) relief can apply to property held in a trust — but the rules differ significantly from PPR relief for individuals: (1) PPR RELIEF FOR INDIVIDUALS: an individual who occupies a property as their ONLY OR MAIN RESIDENCE throughout their period of ownership (or the last 9 months) pays no CGT on the gain when they sell it. The gain is fully exempt; (2) PPR FOR TRUST PROPERTY — TRUSTEES DO NOT OWN A MAIN RESIDENCE: trustees do not have a personal main residence — they hold the property in a fiduciary capacity. The standard PPR exemption for individuals (TCGA 1992 ss.222-226) does NOT automatically apply to trustees; (3) THE TRUST PPR RELIEF — QUALIFYING BENEFICIARY OCCUPATION: PPR relief IS available for a trust property where a BENEFICIARY of the trust has the right to occupy the property and ACTUALLY OCCUPIES IT as their only or main residence. TCGA 1992 s.225 provides that where trustees dispose of a property that has been occupied by a beneficiary under the terms of the trust as their PPR, the gain is exempt (subject to the usual PPR rules including the last 9-month period). The occupation must be: (a) under the terms of the trust — i.e. the trustee has the power/duty to allow the beneficiary to occupy; (b) by a beneficiary who has been entitled to occupy under the trust; (c) for the period of the beneficiary's occupation (the relief mirrors the usual PPR period); (4) LIFE INTEREST TRUSTS — IPDI AND PROPERTY TRUSTS: where a property is held in a life interest trust and the life tenant occupies the property as their home, the trustees are entitled to PPR relief on the life tenant's period of occupation. This is particularly relevant for PROPERTY WILL TRUSTS (life interest trusts). When the trust ends (on the life tenant's death), any gain attributable to the life tenant's period of occupation is exempt under s.225; (5) SPLITS: if the property was let during part of the trust period, the gain must be apportioned. The occupied period qualifies for PPR; the let period may qualify for lettings relief (subject to the post-April 2020 restrictions).