Disabled person’s interest

By Tolley

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

  • Disabled person’s interest
  • What is a disabled person’s interest?
  • IHT treatment of a disabled person’s interest
  • Qualifying conditions for a disabled person’s interest
  • The four types of disabled person’s interest
  • Practical considerations for disabled trusts

What is a disabled person’s interest?

A disabled person’s interest is a disabled person’s entitlement to property held in trust. The entitlement could be discretionary or fixed. It is usually created by another person for his benefit but could also be created by himself.

A trust for a disabled person receives special inheritance tax (IHT) treatment whether created during a lifetime or following a death.

The definition of a ‘disabled person’ includes someone who:

  • cannot manage his own affairs because of mental disorder
  • is receiving certain welfare benefits indicating a physical or mental disability

For the full definition, see the Disabled and vulnerable beneficiary trusts ― uniform definitions guidance note.

FA 2005, Sch 1A
IHT treatment of a disabled person’s interest

A disabled person’s interest (DPI) is a qualifying interest in possession (QIIP). See the Qualifying interest in possession guidance note.

IHTA 1984, s 49(1A)

For IHT purposes, this means that he is treated as if he owns the underlying trust property, with the following consequences:

  • a person who transfers property during his lifetime to a trust for a disabled person makes a potentially exempt transfer (PET) (see the Potentially exempt transfers guidance note). Apart from a bare trust, this is the only example of a lifetime trust created after 22 March 2006 that is not a relevant property trust. (IHTA 1984, s 3A)
  • the settlor of a self-settlement (see below) does not make a PET; he makes no transfer of value at all because the property is not leaving his estate for IHT purposes
  • there are no IHT consequences on any

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