I5.1037 Trusts with vulnerable beneficiaries—income tax relief

IHT, trusts and estates

I5.1037 Trusts with vulnerable beneficiaries—income tax relief

I5.1037 Trusts with vulnerable beneficiaries—income tax relief

Trusts with vulnerable beneficiaries—Amount of income tax relief

Special income tax treatment can be claimed by trustees where property is held on qualifying trusts (see I5.1036) for the benefit of a vulnerable person (see I5.1035), and a vulnerable person election (see I5.1039) is in place1.

Where trustees of a trust with a vulnerable beneficiary make a claim for special tax treatment, the claim covers both income tax and CGT for the tax year2. It cannot apply to one tax and not the other except3 in a year in which the settlor is treated4 as having an interest in the trust property concerned5. However, where the settlor would usually be taxed on the amount of a payment to his minor unmarried child6, if the child is a vulnerable person the relief applies and the payment is not treated as the settlor's income7 (see I5.1039).

Although the liability for income tax remains the trustees', it is calculated according to the personal circumstances of the vulnerable person.

Income tax relief is given as a reduction to the trustees' income tax liability8. This reduction is the amount of income tax the trustees would pay (before applying the special treatment) less the amount of any additional tax (income tax and CGT) that the vulnerable person

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