DISABLED PERSONS’ TRUSTS

Planning for your future

Disabled or Vulnerable People can  Benefit from Trusts

There are tax-breaks for disabled – i.e. ‘vulnerable’ – people. And good solicitors know how to overcome the technical complexities which are involved in order to help clients take advantage of those tax-breaks. This won’t compensate for the disability but it can make life a little more tolerable.

So What is the Relevant Definition of ‘Disabled’?

We should be clear on who the HMRC considers to be a disabled – or vulnerable – person. And they’re this:

  • Somebody who, due to a mental disorder recognised by the Mental Health Act 1983 (this includes Alzheimer’s and other forms of dementia, bipolar disorder, schizophrenia, depression or other mental illness, autism aka ‘pervasive developmental disorder’, or a learning disability g. Down’s syndrome), can’t administer their property or manage their affairs, or
  • Somebody receiving attendance allowance, disability living allowance (high / middle care or high mobility), personal independence payments, an increased disablement pension (under s104 SSCBA 1992 or s104 SSCBS[NI]A 1992), constant attendance allowance or an armed forces independence payment.

That’s from the HMRC handbook. See www.gov.uk/hmrc-internal-manuals/trusts-settlements-and-estates-manual/tsem3421. Yet actually it’s more complex than this (one good reason to use a competent solicitor like somebody at Goodwills). Because it also includes:

  • Somebody who is entitled to, but is not actually receiving, attendance allowance, disability living allowance (high / middle care or high mobility), personal independence payments, an increased disablement pension (under s104 SSCBA 1992 or s104 SSCBS(NI)A 1992), constant attendance allowance or an armed forces independence payment.

You can find this at www.gov.uk/trusts-taxes/trusts-for-vulnerable-people. And here you will also find that there is always going to be a lot of discussion whether a brain injury or disabilities such as Parkinson’s disease might class as, or have repercussions that result in, mental illness. But the definition of ‘vulnerable people’ anyway goes well beyond those with disabilities. Vulnerable people, for example, would also include orphaned minors.

There are other anomalies. And these actually enable the disabled to qualify even if they are not resident or present in the UK, have kidney failure and are in hospital with it, or they’re in a care-home paid for from the public purse.

So, self-evidently, it’s easy for the regulations to be misinterpreted. This sort of complexity explains why it’s worth going to a solicitor e.g. somebody at Goodwills. They are expected to know – or ascertain – the minutiae of entitlements.

Are All Disabled People Treated Equally?

No. Because, if the truth be told, administrative burdens would overwhelm some disabled people just as they overwhelm their able-bodied counterparts.

Disabled persons’ trusts can often be run by the beneficiaries themselves if the disability or disabilities are purely physical. Yet if the disability is mental then usually the trust will be operated instead by reliable friends and relatives.

What is the Process Involved in Claiming Special Tax Treatment Because of a Disability?

The appointed trustees need to complete and sign what is called a ‘vulnerable person election’ form if they want to claim special treatment on behalf of a disabled beneficiary who must sign it too.

Yes you could do this online yourself. But HMRC doesn’t make it easy. For example you cannot save a half-completed form. So you might well run up against questions for which you don’t know the answers. And then you stand to lose everything you’ve already entered into the system.

Any special treatment might come in the shape of capital gains tax, income tax or inheritance tax. We cannot explain here precisely how that might pan out because the formulae are complex and the calculations difficult. Assuming the special treatment is sanctioned then the entitlement would be a rolling one but, should the beneficiary die or overcome their disability in some way, the trustees have a legal responsibility to promptly inform HMRC.

Why is HMRC being so Generous to Disabled People?

In all fairness, the tax-breaks which HMRC gives are intended to assist the trust to hold on to all the cash that it has. But that has the end-result of avoiding the disabled person being a liability to, and a burden on, the state. So there is a certain amount of self-interest involved.

Where Can You Find Out More about Disabled Persons’ Trusts?

You can find out more on disabled persons’ trusts at Goodwills though the HMRC website will tell you a lot at www.gov.uk/hmrc-internal-manuals/trusts-settlements-and-estates-manual/tsem3421. Self-evidently this really is technically complex so, whilst disabled persons’ trusts are a great idea, anyone who is even thinking of setting one up should avail themselves of the expert help that’s available (maybe both solicitors and accountants) and which should be considered to be indispensable. 

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