The latest Budget’s new 28% top rate of capital gains tax (CGT) will apply to all trustees and personal representatives of deceased persons.
Some confusion had arisen 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. But Treasury documents made public along with the Emergency Budget statement, makes clear that the 28% 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% up to a maximum capital gain of £5 million.
Many protests have been made as this latest tax hike move 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.
It is thought some 200,000 family trusts could be affected by the new tax, which was introduced quite unexpectedly.
This is another example of the perishability of financial advice and highlights the need to engage with advisers to benefit from a committed review process of regular financial check ups.
Trustees and personal representatives are 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 the light of these changes.
