Trusts for vulnerable beneficiaries – further reform announced - LITRG Press Release

Published on 10 December 2013

The LITRG has welcomed the publication today of draft legislation which would extend a provision designed to ensure that when a vulnerable person dies their estate is not taxed twice.

LITRG and others have long campaigned for a wider range of people to be able to benefit from the favourable tax treatment accorded to so-called vulnerable and disabled trusts, and for certain anomalies and unnecessary complexities in the regime to be removed. The Group has therefore welcomed today’s draft legislation extending with immediate effect the capital gains tax ‘uplift’ provisions that apply on the death of a vulnerable beneficiary, and including recipients of certain mobility payments within the range of qualifying trust beneficiaries from 2014/15. 

Robin Williamson, Technical Director of LITRG, commented:

“We are grateful for the constructive way in which HMRC has consulted on this issue, particularly over the past two years. We trust that the forthcoming legislation will simplify this over-complex tax regime, and make the favourable tax treatment accorded to vulnerable beneficiary trusts available to all who need it.”

The regime governing the taxation of trusts for beneficiaries deemed ‘vulnerable’ or disabled is intended to ensure that the property, income and gains of such trusts is taxed as though it belonged to the beneficiary, and is exempt from the extra tax charges that are imposed on most other trusts. Hitherto, this objective has not been achieved in some cases where the beneficiary has died and the trustees have faced both inheritance tax and capital gains tax charges on the same property. The draft legislation should eliminate the capital gains tax charge in such circumstances.

Vulnerable and disabled beneficiaries are defined as those under 18 years of age at least one of whose parents has died, those who are unable to manage their own affairs because of certain mental disorders, and those in receipt of certain welfare payments in respect of their care needs. Today’s draft legislation extends the definition to those in receipt of the mobility component of disability living allowance at the higher rate or of personal independence payment at either the enhanced or the standard rate, and the Government intends to consult on what further extensions might be appropriate.

(10-12-2013)

Contact: Robin Williamson (please use form at http://www.litrg.org.uk/ContactUs)