Capital Gains on PI Trust - help please

DWM345

My daughter has a Personal Injury Trust bank account with Barclays and a PI Trust Investment account with Fidelity. She is on Universal Credit so it is imperative that the money stays under protection from benefits assessment. My daughter is the settlor and we are both trustees.

The funds with Fidelity are in Vanguard funds and Fundsmith and are seeing reasonable growth but we want to understand and if possible avoid Capital Gains tax. Since the outset, 30 months ago, the annual gains have been around £5k.

I thought the Capital Gains allowance was about £12k a year but it seems to have dropped in the last 2 years, to £6k and then £3k. Why is that, what have I missed ?

And is it £3k per trustee, or per trust ? If per trustee, can we add more trustees ?

I must admit I have been caught unawares with this so apologies if my questions seem naive.

Bookworm105

is that money registered as a trust for a "vulnerable" person? if yes the allowance is indeed 3k (24/25)
Trusts and taxes: Trusts for vulnerable people - GOV.UK (www.gov.uk)

the allowance is for the trust, not trustee. Just like the rest of taxation it is applied to an individual person so no, adding more trustees does not add more allowance since the person being taxed is your daughter, not you as a trustee for your daughter. The wording saying trustees pay the tax is obviously a nod towards the assumption that the "vulnerable" person is unable to manage their own affairs, so cannot make a payment themselves.

as for the drop, what you have missed is the publicity given to the govt using "stealth tax" to increase its tax take. Instead of increasing the headline actual rate of tax, it radically reduced CGT allowance and froze the income tax allowance, so that more people end up paying more tax without the newspapers making a field day over a rise to the tax rate . 

DWM345

Thanks Bookworm105, clearly it was too stealthy for me.

DWM345

My daughter is not a "Vulnerable Person" and she pays income tax at the basic rate.

I am thinking that the CGT liability only arises if we crystalise our holdings, so if we sell everything now then my daughter will be liable for tax on (£10k - £3k), gain less 24/24 allowance. Is there any way to use/claim the 23/24 allowance of £6k ?

My daughter probably won't need the money for a few years, is there any other way we could reduce the CGT liabibilty ?

I don't suppose there is an exemption for Personal Injury trusts ?  It is going to be hard to keep the funds inflation proofed at this rate.

DWM345

Above, I meant 24/25 allowance of £3k.

Bookworm105

DWM345 said:

My daughter is not a "Vulnerable Person" and she pays income tax at the basic rate.

I am thinking that the CGT liability only arises if we crystalise our holdings, so if we sell everything now then my daughter will be liable for tax on (£10k - £3k), gain less 24/24 allowance. Is there any way to use/claim the 23/24 allowance of £6k ?

My daughter probably won't need the money for a few years, is there any other way we could reduce the CGT liabibilty ?

I don't suppose there is an exemption for Personal Injury trusts ?  It is going to be hard to keep the funds inflation proofed at this rate.

sorry but you specifically use the term "personal injury trust" - that should mean it falls into the "vulnerable persons" category, the point being the allowance for one of those is £3,000
Trusts and taxes: Trusts and Capital Gains Tax - GOV.UK (www.gov.uk)
If it is not so registered then it is treated as a "general" trust for which the allowance is only £1,500. so the "exemption" given to a PI trust is a higher allowance, not a total exemption

Please make sure you understand the difference if you want to DIY her tax for her. You potentially sound rather out of your depth as you need to make a one off election to benefit from further tax advantages on a vulnerable person trust

Trusts and taxes: Trusts for vulnerable people - GOV.UK (www.gov.uk)

Disabled and personal injury trusts (abrdn.com)

the allowance is an in year use or lose value, you cannot carryover unused amounts. The date of sale of the item determines which tax year it falls in. 

(what rate of income tax she pays is irrelevant, I was merely following the PC wording "vulnerable" used for when referring to controlling the funds of people covering the full spectrum of disabled / lacking mental capacity to deal with own affairs.)