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HMRC internal manual

Capital Gains Manual

Annual exempt amount: settlements: disabled persons: qualifying conditions

It is quite common for a trust deed drawn up for the benefit of a disabled person to provide that during the accumulation period, normally 21 years, income is to be accumulated if it is not paid to the disabled person. After that period the trust is to be a discretionary trust of which the disabled person and other relatives are beneficiaries. Such a trust fails to meet the test in TCGA92/SCH1/PARA1 because it does not ensure that during the lifetime of the deceased, either he or she receives at least half the income or no one else receives any.

Section 89 Inheritance Act 1984 is designed to give relief for trusts for the disabled where there is no interest in possession. As a general rule, a trust which meets the tests in that section will not qualify for the full annual exemption in paragraph 1 Schedule 1 TCGA.