A guide to investment for trustees 10 There have been considerable changes in trust taxation in recent years, notably the changes to capital gains tax (CGT), the changes to the inheritance tax (IHT) treatment of trusts introduced in 2006 and the revised treatment of dividends from April 2016. Trustees of express trusts (trusts created formally by someone using a written deed) must register the trust using the HMRC Trust Registration Service. All affected trusts must be registered by 1 September 2022. The register must be updated each year the trust has a UK tax liability. Regarding self-assessment, trustees generally have to complete HMRC form SA900 each tax year. Trustees are assessed for tax in their capacity as trustees, not as individuals. Trustees do not have any income tax Personal Allowance and the CGT exemption is usually one half of that available to an individual. The rates of tax payable depend upon the nature of the trust. Moreover, there are anti-avoidance rules which may mean that the settlor (the person who created the trust) may be taxed instead of the beneficiary or trustees, where income and gains arise inside the trust. The HMRC website outlines trustees’ full reporting and record-keeping obligations. Please see www.gov.uk/trusts-taxes/trustees- tax-responsibilities A trust will generally receive income in the form of savings and dividend income. Depending on the type of trust, the way income and dividends are taxed will differ. A trust may also make capital gains. These are taxed differently according to the type of trust. Where trustees realise gains, they have a capital gains tax allowance of £6,150 (frozen until April 2026) which is currently half of the exemption for individuals. Where an individual creates more than one trust, this allowance is split between these trusts subject to a minimum of £1,200 per trust. Bare trusts Income tax - (where the beneficiary is an adult) Where the beneficiary is an adult, he or she is responsible under self-assessment to report trust income and gains to HMRC, whether received by the beneficiary or retained by the trustees for further investment. Income tax - (where the beneficiary is a minor) Where the trust is created by anyone other than a living parent (see page 15), all income is taxed as the child’s, even if it is not paid to them. Where appropriate, tax deducted can be reclaimed by either the appropriate adult or trustees. Where the trust is created by a living parent, there are anti-avoidance rules that apply if the income (per parent per child) exceeds £100 gross each year. This means that tax will be assessed on the parent, even if the income is retained or paid to the beneficiary, and declared on their self-assessment. Capital gains tax - (where the beneficiary is a minor or adult) Any gains realised by the trustees are assessed for tax on the beneficiary so that their full annual CGT allowance and £12,300 (frozen until April 2026) can be used. The anti-avoidance rules do not apply to capital gains. Inheritance tax - (where the beneficiary is a minor or adult) The value of the trust fund becomes part of the beneficiary’s estate and the transfer by the settlor is either an exempt or potentially exempt transfer (i.e., a gift). If the minor beneficiary of a bare trust dies, the beneficiary’s parents (if alive) will inherit their estate under the intestacy rules, as a minor cannot make a will. Taxation of trusts The tax treatment of holding an investment within the trust in question may be a major influence on the trustees’ choice.