Capital Gains Tax changes for offshore trusts – How UK resident beneficiaries will be affected

By James Thomson ATT CTA, Tax Manager at Grunberg & Co.

Following the major Inheritance Tax reforms and remittance basis changes covered in the first two parts of our series, the final article focuses on the recent Capital Gains Tax (CGT) changes that will impact UK resident beneficiaries of offshore trusts.

These changes mean that beneficiaries receiving capital payments or benefits from foreign trusts could face increased CGT liabilities.

How CGT currently applies to offshore trust beneficiaries

When UK resident individuals receive capital payments or benefits from a non-UK resident trust, those payments are typically matched to stockpiled gains within the trust and are subject to CGT.

Beneficiaries report these amounts on their Tax Return.

Several important rules already apply:

• Annual Exempt Amount – Individuals can receive capital payments and benefits free of CGT up to their Annual Exempt Amount.
• Matching rules – Payments and benefits are matched to historic trust gains on a first-in, first-out basis.
• Uplifted CGT rates – The longer the gain has been held within the trust, the more tax may apply – CGT rates can be increased by up to 60 per cent.

What has changed?

Two key developments have resulted in higher CGT bills for many UK resident beneficiaries:

Reduction in Annual Exempt Amount

From 6 April 2024, the Annual Exempt Amount for individuals has been reduced from £6,000 to £3,000. For most trusts, this is even lower at £1,500.

This means smaller amounts of capital payments or benefits are taxable each year.

UK resident beneficiaries will reach the CGT threshold more quickly.

Increased CGT rates

From 30 October 2024, the CGT rates applied to capital payments and benefits were increased:

• Basic Rate Taxpayers – CGT increased from 10 per cent to 18 per cent.
• Higher and Additional Rate Taxpayers – CGT increased from 20 per cent to 24 per cent.

However, that is not all. Remember, capital payments and benefits are matched to historical trust gains.

The older the gain, the higher the potential uplift. For example, if a capital payment or benefit is made in the 2025/26 tax year, the uplift depends on the year of the gain it’s matched to:

• Gain from the same year (2025/26) – no uplift
• Gain from two years earlier (2023/24) – 20 per cent uplift
• Gain from six years earlier (2019/20) or older – maximum uplift of 60 per cent

For example, a Higher Rate Taxpayer may face a standard CGT rate of 24 per cent.

However, if their 2025/26 capital payment is matched to a trust gain from before 6 April 2020, the CGT rate could rise to 38.4 per cent after the uplift.

Can the Annual Exempt Amount still be used?

Yes. Beneficiaries can use their £3,000 Annual Exempt Amount in priority against these capital payments, including those subject to uplifted CGT rates.

If no other gains are made in the year, small trust payments may still fall within this exemption.

Next steps for trustees and beneficiaries

With CGT rates increasing and exemptions tightening, you should review any anticipated capital payments or benefits from offshore trusts.

Additionally, as covered in our related article, the abolishment of the remittance basis from 6 April 2025 may impact non-domiciled UK resident beneficiaries who have historically deferred CGT on trust gains; from that date, foreign gains matched to trust payments will be subject to UK tax regardless of whether they are remitted.

For advice on managing CGT exposure on offshore trust payments, please speak with our team today.