Disabled and vulnerable beneficiary trusts ― uniform definitions

By Tolley
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The following Trusts and Inheritance Tax guidance note by Tolley provides comprehensive and up to date tax information covering:

  • Disabled and vulnerable beneficiary trusts ― uniform definitions
  • Introduction
  • Special trust provisions for disabled persons and vulnerable beneficiaries
  • Definition of vulnerable beneficiary
  • Definition of a disabled person
  • Qualifying terms of the trust

Introduction

It has long been recognised that special concessions are appropriate where property is held in trust for the benefit of a person who is unable to manage his financial affairs. Broadly, these concessions aim to treat the trust property as if it was owned outright by the individual, instead of applying special trust tax rules to it.

Concessions have been introduced piecemeal with the result that the qualifying definitions and conditions were not consistent and at times contradictory.

Finance Act 2013 introduced amendments across the board to the tax legislation dealing with trusts for disabled persons and other vulnerable beneficiaries.

In summary, the amendments:

  • updated the definition of a disabled person and applied it to all the relevant provisions
  • harmonised the qualifying conditions for all such trusts
Special trust provisions for disabled persons and vulnerable beneficiaries

The provisions which are affected by these definitions are:

Inheritance Tax

  • trusts for bereaved minors ― see the Trusts for bereaved minors guidance note (IHTA 1984, s 71A)
  • age 18–25 trusts ― see the Age 18–25 trusts guidance note (IHTA 1984, s 71D)
  • disabled person’s interest created on or after 22 March 2006 is a qualifying interest in possession (QIIP) (IHTA 1984, s 49)
  • disabled person’s discretionary interest created after 9 March 1981 is a deemed interest in possession (IHTA 1984, s 89)

    Self-settlement on discretionary trust created on or after 22 March 2006 by a person expected to become a disabled person is a deemed interest in possession.

    (IHTA 1984, s 89A)
  • meaning of ‘disabled person’s interest’ includes both actual and deemed interests

More on Other special categories: