»Ê¹ÚÌåÓýapp

FA2005/S31

Section 77 TCGA 1992 was repealed by FA08. That Act also introduced a single rate of capital gains tax of 18% for all taxpayers. This made it possible to simplify the special treatment if it is claimed for the years 2008-09 onwards. »Ê¹ÚÌåÓýapp treatment is very similar to that which has always applied for income tax and to the capital gains of non-UK resident beneficiaries. Gains on the disposal of relevant settled property are taxed on the trustees. »Ê¹ÚÌåÓýapp tax is reduced to the amount that would be payable if the gains had accrued to the beneficiary.

»Ê¹ÚÌåÓýapp introduction of 20 and 28 per cent rate of Capital Gains Tax for trustees by F(No2)A 2010 and FA2016 for gains did not require any change in this approach. You still compare the tax that would have been paid if the gains had accrued to the beneficiary with the tax payable by the trustees. »Ê¹ÚÌåÓýapp 28 per cent rate for trustees does mean that there may be more cases in which a claim is beneficial. For the years 2008-09 and 2009-2010 a claim will only be beneficial if the beneficiary has unused personal losses or if their annual exempt amount is greater than that of the trustees. Depending on the amount of their income and the type of asset disposed of the gain may be taxed at 10 or 18 per cent on the beneficiary. FA2005/S31, after its amendment by FA08, gives a formula for calculating the relief due to the trustees. »Ê¹ÚÌåÓýapp CGT payable by the trustees is reduced by the amount TQTG-VQTG.

TQTG is the amount of CGT the trustees would have to pay in accordance with the usual rules. VQTG is the amount of capital tax that would be paid if the gains accrued to the beneficiary.

You get the value of VQTG by deducting the capital gains tax due on the beneficiary’s personal gains, TLVB, from the amount of capital gains tax due if the trust gains had also accrued to the beneficiary, TLVA. In calculating TLVB you deduct the beneficiary’s annual exempt amount and personal losses. You make the same deductions in calculating TLVA but if the beneficiary has a net personal loss for the year you do not deduct this when calculating the tax due on the trustees� gains. This is to avoid giving the beneficiary the benefit of the losses twice when those losses are carried forward and set against their gains in a later year.

»Ê¹ÚÌåÓýapp initials used in section 31 are not a precise acronym.

TQTG means trustees� liability on qualifying trust gains.

VQTG means vulnerable beneficiary’s liability on qualifying trust gains.

TLVA means tax liability of vulnerable beneficiary on their personal gains and the trust gains.

TLVB means tax liability of vulnerable beneficiary on their personal gains

»Ê¹ÚÌåÓýapp ‘qualifying trust gainsâ€� in this context will often be the total gains made by the trustees in the year but may be a different figure if not all the settled property is held for the benefit of vulnerable persons.

Example

»Ê¹ÚÌåÓýapp trustees' net gains for the year 2018-19 are £42,100. £17,000 of these gains accrued on the disposal of shares and so are taxed at 20 per cent. £25,100 of these gains accrued on the disposal of residential property and so are taxed at 28 per cent. »Ê¹ÚÌåÓýapp beneficiary has no personal gains.

»Ê¹ÚÌåÓýapp trusteesâ€� annual exempt amount is £5,850. »Ê¹ÚÌåÓýapp beneficiary has an annual exempt amount of £11,700. »Ê¹ÚÌåÓýapp beneficiary's taxable income for 2018-19 after deductions and the personal allowance is £24,500.

First calculate TLVB. This is the amount of the beneficiary’s personal liability to CGT. This is £nil.

Second calculate TLVA. This is the amount of CGT the beneficiary would have to pay if the trusteesâ€� qualifying gains also accrued to them in addition to any personal gains. »Ê¹ÚÌåÓýapp beneficiary is treated as having £17,000 gains in respect of the shares and £25,100 gains which accrued on the disposal of residential property. »Ê¹ÚÌåÓýapp beneficiary's annual exempt amount is set against the £25,100 gains taxed at the higher Capital Gains Tax rate, £25,100 - £11,700 = £13,400. »Ê¹ÚÌåÓýapp beneficiary's taxable income of £24,500 is £10,000 less than the upper limit of the basic rate tax band for 2018-19, £34,500. »Ê¹ÚÌåÓýapp first £10,000 of the £13,400 gains are taxed at 18% = £1,800 and the remaining £3,400 at 28% = £952. »Ê¹ÚÌåÓýapp £17,000 gains which accrued in respect of shares are taxed at 20% = £3,400. TVLA is £1,800 + £952 + £3,400 = £6,152.

Third calculate VQTG. This is TLVA � TLVB that is £6,152 - £0 = £6,152

Fourth calculate TQTG. This is the trusteesâ€� liability on their chargeable gains. »Ê¹ÚÌåÓýapp annual exempt amount, £5,850, is set against the £25,100 gains chargeable at 28 per cent giving tax chargeable of £5,390. »Ê¹ÚÌåÓýapp balance of the gains, £17,000 is taxed at 20 per cent giving tax chargeable of £3,400. TQTG is £5,390 + £3,400 = £8,790.

Finally reduce TQTG by VQTG to calculate the relief due to the trustees. This is £8,790 - £6,152 = £2,638. So the trustees liability is £8,790 � £2,638 = £6,152. This is the tax that would be due if the trust gains accrued to the beneficiary.