Trustees face cut to CGT allowance to just £300

Capital gains tax allowances will be slashed from April next year but some taxpayers will be punished more than others.

The allowance will fall from £12,300 to £6,000 in April 2023 before being halved again in April 2024. However, trustees, those who manage a trust on behalf of beneficiaries, face more punitive cuts. Some will see the allowance fall to as low as £300.

Trustees can currently make gains of up to £6,150 on assets taken out of or put into the trust before they pay capital gains tax. But their allowance will fall in line with the Government’s changes, so from April it will be only £3,000 and then £1,500 from 2024.

Any gains above these amounts are subject to 20pc tax, or 28pc for property assets. This means no tax would be due this year on a £6,000 gain on shares held in a trust but in 2023 the trustee would pay £600 in tax, or £900 in 2024.

Some trustees’ allowance will be smaller still. If the trust’s creator, or settlor, has set up multiple trusts, the allowance will be divided equally between the various trusts, up to a maximum of five – leaving some trustees with a CGT allowance of just £300.

In this case, if the assets grew by £10,000, trustees would lose almost £2,000 of that gain to HM Revenue & Customs. Jamie Mathieson of law firm JMW Solicitors said: “The knock-on effect this change will have on trustees, who currently benefit from a CGT allowance of half that of an individual, was not mentioned.”

Simon Jennings, a member of the Society of Estate & Trust Practitioners, a body of advisers, said the cuts would give rise to “fictitious gains” that individuals then had to pay tax on.

The CGT allowance is lower for trustees to prevent beneficiaries from effectively receiving double relief on trust gains as well as their own, according to the Treasury.

Trusts are often used to preserve family wealth for future generations, Mr Jennings said. But he added: “Trusts have been penalised by successive governments without any really good reason, such as the requirements for trusts to register with HMRC. This placed a heavier burden on trustees, particularly for small trusts and trusts for minors.”

Trustees were told to register trusts with HMRC before Sept 1 or face a £5,000 penalty. It is estimated that hundreds of thousands have still to register.