New Capital Gains Tax CGT rules

Discretionary trusts are not the only vehicles that will be hammered by the new 28 per cent top rate of capital gains tax (CGT) announced in George Osbome’s emergency Budget. The tax hike will also apply to all trustees and personal representatives of deceased persons.

Confusion arose in the days following the Budget announcement as the Direct Gov website suggested the top rate of CGT would only apply to discretionary trusts that are taxed at the higher rate.

Estates have never previously paid the higher rate of CGT on gains realised. But, according to independent financial adviser (IFA) Informed Choice, Treasury documents made public along with the emergency Budget statement, make clear that the 28 per cent rate applies to all trusts irrespective of the benefici­aries’ income tax bracket.

For individuals, the rate of CGT remains 18 per cent where total taxable gains and income are less than the upper limit of the income tax basic-rate band… For trustees and personal representa­tives of deceased persons, the rate is increased to 28 per cent (previously 18 per cent).”

The tax applies to any gains made while an estate is being administered and for the duration of a trust.

There is only an exception where the trust or estate is eligible for entrepreneurs’ relief, in which case the CGT rate will be 10 per cent up to a maximum capital gain of £5m.

Protests have been made that this latest tax hike may penalise will trusts created by parents for their children if they are orphaned while still minors; a direct hit to some of the most vulner­able in society.

Expectations are that some 200,000 family trusts could be affected by the new tax, which was introduced quite unexpectedly.

Trustees and personal representatives are being urged to take advice as quickly as possible to ensure that their trust investments are being held and managed in the most tax-efficient man­ner in light of recent changes.

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