Applies to:
• A bereaved child aged under 18
• A disabled person eligible for:
◦ Attendance Allowance
– middle or higher rate
– highest rate mobility component
◦ PIP
◦ Increased disablement pension
◦ Constant Attendance Allowance
◦ Armed Forces Independence Payment
• A person covered by the Mental Health Act 1983
Trusts that qualify for special treatment
• Cannot qualify if the Settlor can benefit from the Trust income
• 2008 – 2009 Trust qualified for special Capital Gains Tax treatment
Trusts with more than one Beneficiary
The Vulnerable Beneficiaries assets and income:
• Must be identified and registered separately
• Only used for the vulnerable beneficiary
NB only that part of the Trust receives the special tax treatment
Claiming special tax treatment
• Need to complete a Vulnerable Person Election form
NB all trustees and beneficiary must sign the application
• If the vulnerable person dies or ceases to be vulnerable, trustees must notify HMRC and special tax treatment ceases to apply
Applying special tax treatment once a Vulnerable Person Election has been approved
• Calculate the Trust liability at the full Trust rates of income tax and dividend rate
• Calculate the tax payable had the income been received personally
• Claim a deduction on the Tax Return for the difference
Capital Gains Tax 2019/20
• The ‘annual exempt amount’ for trustees is £6,000
• For Trusts with a physical or mental disability the ‘annual exempt amount’ increases to £12,000
NB the special CGT treatment for a vulnerable beneficiary does not apply in the year of death
Inheritance Tax
Special Inheritance Tax applies:
• For a disabled person whose trust was set up before 8/04/13, where at least half of the payments go to the disabled person in their lifetime
• Post 8/04/13, all payments must go to the disabled person, apart from £3,000 per annum (or 3% of assets if lower) which can go to another
• For an individual setting up a trust in anticipation of being disabled
• For a bereaved minor – they must take the assets and income at age 18
There is no IHT charge:
• If the person who set up the trust survives 7 years from the date the trust was set up
• On transfers made out of a trust to a vulnerable beneficiary
• 10 year anniversary charges do not apply
Vulnerable Trusts and C.I.C.A
• The Settlor of the C.I.C.A is also the beneficiary of the Trust
• Therefore the Special Rules for Income Tax treatment do not apply
• The Trustees must register the Trust on the HMRC Trust Register
• Complete annual Trust Returns taxing the income at the Trust rates
• Prepare R185 showing the payments to the beneficiary and tax paid
• Beneficiary would submit annual Tax Returns or tax repayment claims to include the taxed Trust income
• Subject to receiving agreement to Vulnerable Persons Election, Capital Gains Tax relief can be claimed
SBN Tax & Accounts Services Ltd 