CGT and trusts work together in two main ways for UK tax planning. Gifts into most lifetime trusts qualify for gift holdover relief, so CGT on a rising asset can be deferred rather than paid now. And a bare trust lets gains be taxed on the beneficiary, using their own £3,000 annual exempt amount and 18% rate. Trustees of other trusts pay CGT at 24% on all gains with only a £1,500 allowance, so trusts are a planning tool to use carefully, not a way to avoid tax.
Trusts are often used to pass wealth down the generations while keeping some control over when beneficiaries receive it. The CGT, Inheritance Tax and reporting rules all interact, so the right structure depends on the asset, the family and the timing. GOV.UK’s guide to trusts and taxes sets out the basic framework.
This guide explains how CGT and trusts interact, the planning opportunities and their limits, a worked example for 2026/27, and the reporting obligations trustees must meet.
How CGT and Trusts Interact
There are three points where Capital Gains Tax can arise with a trust:
- Putting assets in. A gift to a trust is a disposal at market value by the settlor, so a gain can arise even though no money changes hands.
- While the trust holds assets. When trustees sell an asset at a gain, the trust pays CGT.
- Taking assets out. When trustees transfer an asset to a beneficiary, that is also a disposal at market value.
Our guide to putting assets into a trust and CGT covers the first stage in more detail.
The Main Types of Trust for CGT
| Trust type | Who pays CGT on gains | Annual exempt amount | Holdover relief on gifts in |
|---|---|---|---|
| Bare trust | The beneficiary | Beneficiary’s own £3,000 | No (only business assets) |
| Discretionary trust | Trustees at 24% | £1,500, shared between trusts by the same settlor | Yes |
| Interest in possession trust | Trustees at 24% | £1,500, shared | Yes, for lifetime trusts since 2006 |
| Trust for a vulnerable person | Can be taxed as if the beneficiary’s gain, on election | Up to £3,000 | Yes |
| Settlor-interested trust | Trustees at 24% | £1,500, shared | No |
Where one settlor has created several trusts, the £1,500 is split between them, with a minimum of £300 per trust. Current individual allowances are on the GOV.UK CGT allowances page.
How Trusts Help With CGT Planning
1. Deferring CGT with holdover relief
A gift into a discretionary or other relevant property trust is a chargeable lifetime transfer for Inheritance Tax. That allows the settlor to claim gift holdover relief, so the gain is not taxed now and the trustees take over the settlor’s base cost. Only the settlor signs the claim. Our guide to gift holdover relief explains how it works, and HMRC’s HS295 helpsheet sets out the claim.
2. Deferring again when assets leave the trust
When discretionary trustees appoint an asset to a beneficiary, holdover relief is normally available again. The beneficiary can then sell using their own £3,000 annual exempt amount and, if they are a basic rate taxpayer, the 18% rate on part of the gain.
3. Bare trusts for children and grandchildren
Gains in a bare trust are taxed on the beneficiary, even if they are a minor. A grandchild with no other income can use their own annual exempt amount and basic rate band. The parental settlement rules that tax a parent on a child’s investment income do not apply to capital gains.
4. Combining CGT and Inheritance Tax planning
Assets placed in a discretionary trust leave the settlor’s estate after seven years. Holdover relief means a rising asset can move out of the estate without an immediate CGT bill. Keeping the gift within the £325,000 nil-rate band avoids the 20% lifetime IHT charge. For the wider picture, see our guide to capital gains tax planning.
Worked Example: Gifting a Buy-to-Let into a Trust
Helen owns a buy-to-let worth £300,000 that she bought for £180,000. She has made no other gifts in the last seven years. She settles it on a discretionary trust for her grandchildren and claims holdover relief.
| Step | No holdover claim | With holdover relief |
|---|---|---|
| Market value at gift | £300,000 | £300,000 |
| Helen’s gain | £120,000 | £120,000 held over |
| Less annual exempt amount | (£3,000) | – |
| Helen’s CGT now at 24% | £28,080 | £0 |
| Trustees’ base cost | £300,000 | £180,000 |
| IHT entry charge (within £325,000 nil-rate band) | £0 | £0 |
Holdover relief defers £28,080 of CGT. The deferred gain has not gone away. If the trustees later sell for £340,000, their gain is £160,000 (from Helen’s base cost of £180,000). After the trust’s £1,500 allowance, that is taxed at 24%, giving £38,040. If instead the trustees appoint the property to a grandchild with a further holdover claim, the grandchild may pay less by using their own allowance and the 18% rate. Our CGT rates for 2026 guide shows the bands.
The Limits of Using Trusts for CGT
- Higher rate in the trust. Trustees pay 24% on all gains, with half the individual allowance.
- No holdover for settlor-interested trusts. If you or your spouse can benefit, holdover relief is not available on the gift in.
- No uplift on death for discretionary trusts. Unlike assets held personally, the base cost is not reset when a beneficiary dies.
- Inheritance Tax charges. Relevant property trusts face ten-yearly charges of up to 6% and exit charges.
- Stamp Duty and mortgages. Gifting mortgaged property into trust can trigger Stamp Duty Land Tax on the debt taken over.
Where property is left in trust on death, different rules apply. See our guide to CGT on property left in trust.
Reporting CGT for Trusts
Trustees must register most express trusts on HMRC’s Trust Registration Service, report gains on the trust’s SA900 tax return, and pay by 31 January after the tax year ends. If the trustees sell UK residential property at a gain, the 60-day reporting rule applies to them just as it does to individuals. A settlor claiming holdover relief reports the gift and the claim on their own Self Assessment return.
Frequently Asked Questions
Do trusts pay capital gains tax in the UK?
Yes. Trustees of discretionary and interest in possession trusts pay CGT at 24% on gains above the trust’s annual exempt amount of up to £1,500. In a bare trust, the beneficiary pays instead.
Can putting property in a trust avoid capital gains tax?
Not permanently. Holdover relief can defer the CGT when you gift an asset into most lifetime trusts, but the gain passes to the trustees and is taxed when they sell.
What is the CGT allowance for trusts in 2026/27?
£1,500, half the individual £3,000. If one settlor has created several trusts, it is shared between them, with a minimum of £300 each.
Is there CGT when a trust transfers property to a beneficiary?
Yes, it is a disposal at market value by the trustees. For discretionary trusts, holdover relief is usually available so the beneficiary takes on the gain.
Does a bare trust pay capital gains tax?
No. A bare trust is transparent for tax, so gains are taxed on the beneficiary using their own allowance and rate, even if they are a child.
Do I need advice before setting up a trust?
Yes. Trusts combine CGT, Inheritance Tax, Stamp Duty and legal issues, and many decisions cannot be reversed. A specialist can model the tax before the trust deed is signed.
Conclusion
CGT and trusts can work well together. Holdover relief lets you move rising assets into a trust without an immediate tax bill, bare trusts let gains be taxed on beneficiaries with their own allowances, and both can support Inheritance Tax planning.
The trade-offs are the 24% trust rate, the smaller allowance, IHT charges on relevant property trusts, and the loss of uplift on death. Model the numbers before the assets move.
For advice on using trusts in your planning, speak to our inheritance and CGT specialists. Call us on +44 (0)1204 859315 or send us your question for a free initial consultation and a fixed-fee quote within 24 hours.
