Background
59.Special tax rules exist for trusts for the benefit of a vulnerable beneficiary. The rules:
reduce, following an election and annual claim, the trustees’ tax liability on income and chargeable gains to an amount that, broadly, would be chargeable on the beneficiary if the gains had accrued and/or the income had arisen directly to that person;
extend the annual exempt amount of chargeable gains that applies to trusts to match that available to individuals;
ignore the normal charges to inheritance tax for trusts; instead, the property is treated as part of the beneficiary’s estate on their death.
60.The Welfare Reform Act 2012 introduces personal independence payment, which will replace disability living allowance (DLA) for working age people (16 to 64). The existing definition of a vulnerable beneficiary for tax purposes relies in part on whether the person is in receipt of DLA, so a new definition is required.
61.Current limitations on how the income and capital of a qualifying vulnerable beneficiary trust can be applied differ between taxes. In some cases, up to 50% of the capital can be applied for the benefit of a person other than the vulnerable person without the loss of the favourable tax position.
62.HMRC consulted on the changes brought into effect by this Schedule between 17th August and 8th November 2012.
