CGT concessions for disabled and vulnerable beneficiaries

Finance Act 2013 introduced harmonising amendments to all the qualifying conditions for trusts for disabled persons and other vulnerable beneficiaries. See the Disabled and vulnerable beneficiary trusts ― uniform definitions guidance note. Prior to the FA 2013 changes, it was a confusing trail through the tangle of CGT concessions aimed at trusts for vulnerable people. Not only did they conflict with the concessions for other taxes, the provisions for capital gains tax were not consistent. The new rules in Finance Act 2013 attempt to apply uniform conditions for all special provisions for disabled and vulnerable beneficiary trusts with effect from 2013/14. Finance Act 2014 made further adjustments.

However, where the new rules have become more restrictive, trusts already in existence, or included in a Will drafted before 8 April 2013, and satisfying the old conditions, will continue to qualify under the old conditions. The change to more restrictive qualifying conditions relates principally to the application of capital within the trust. Under old rules, trusts qualified for the disabled person’s concessions for annual exemption and hold-over relief if at least half of the capital applied was applied for the benefit of a disabled person. Under the new rules, all of the capital applied (except for a small annual limit) is to be so applied.

This guidance note deals with each special CGT provision for trusts with a vulnerable beneficiary and, where applicable, explains the position before and after the changes introduced by Finance Act 2013 and Finance Act 2014. Note that someprovisions apply only to trusts for a disabled person, and do not cover the other category of vulnerable beneficiary, a young person under the age of 18, one of whose parents has died.

The CGT annual exemption for trusts is one half of the personal annual exemption. Where a settlor has created more