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Overview

This guidance note details the normal tax position of trusts which have more than one fund and how this tax position can be changed if a sub-fund election is made. It also sets out the conditions for a sub-fund election, its effects and how to make a sub-fund election. Sub-fund elections cannot have effect before 6 April 2006.

The normal position

Many trusts will have more than one fund. This might be a specific fund carved out for a life tenant (with a qualifying or non-qualifying interest in possession ― see the Qualifying interest in possession guidance note) or discretionary funds for different branches of the family. However, for income tax, capital gains tax and inheritance tax purposes this remains one fund, even where the trustees of each fund are different. This means that:

1. •

   the capital gains and losses are pooled; the capital losses on one fund must be set against the capital gains of the other

2. •

   the capital gains tax annual allowance must be shared

3. •

   there will be