What you need to know (without the jargon)

Being appointed as a trustee is an important role. You’re balancing a lot by respecting the wishes of the person who created the trust, looking after the beneficiaries, managing investments, and staying on the right side of HM Revenue & Customs (HMRC).

Most trustees are familiar with income tax from their day-to-day finances. But Capital Gains Tax (CGT) is often less familiar and it can catch people out.

What is Capital Gains Tax?

Put simply, CGT is a tax on profit made when you dispose of an asset. “Dispose of” doesn’t just mean selling. It also includes:

• Gifting an asset
• Transferring it to someone else
• Swapping it for something else

The key word is profit. It’s the increase in value between when the asset was acquired and when it’s disposed of.

Some assets are exempt (like your main home or certain personal belongings), but many trust assets such as investments or additional property can trigger CGT.

How is it worked out?

The basic idea is straightforward:

1. Start with the asset’s value when it was acquired

(This is often what was paid for it, or its value at the date of death if inherited)

2. Look at its value when it’s disposed of

Deduct allowable costs (such as legal fees or improvement costs)

3. The difference is your gain (or loss)

There are reliefs available in some situations, but the rules can be detailed especially for trusts.

When does CGT apply to a trust?

CGT can arise at several points:

1. When assets go into a trust

The person transferring the asset may face a CGT charge. In some cases, the gain can be deferred (known as “holdover relief”), but this isn’t always available.

2. When trustees sell or transfer assets

Trustees may need to pay CGT on any increase in value during the trust’s ownership.

3. Depending on the type of trust

Some trusts are taxed as if the beneficiary owns the asset directly. Others pay CGT at higher rates up to 24%

Trusts also have a smaller annual tax-free allowance (currently £1,500 for 2025/26), which can reduce the taxable gain slightly.

Why this matters for trustees

CGT isn’t just a one-off consideration. It can arise at multiple stages in the life of a trust.

As a trustee, you are responsible for:

• Keeping accurate records of asset values
• Reporting gains to HMRC
• Filing tax returns correctly
• Paying any tax due on time

Getting it wrong can lead to penalties, so it’s important to stay on top of it.

Final thoughts

Acting as a trustee means making decisions that are legally and financially sound. While CGT can seem technical, the key takeaway is simple:

Any increase in value on trust assets may have tax consequences and those need to be managed carefully.

If you’re ever unsure, taking professional advice can help you meet your responsibilities with confidence and avoid unexpected issues later on.

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