Guidance in TSEM: conditions for special rules to apply - qualifying trusts
The legislation can apply only where the settled property is held on qualifying trusts. Broadly the legislation applies to settled property which is held on trusts (using the word “trusts” as equivalent to “terms on which the property is held”) which secure that over particular periods only the vulnerable person can benefit. See TSEM3430 (FA2005/S34) for the conditions for trusts for disabled persons and TSEM3435 (FA2005/S35) for relevant minors to be qualifying trusts.
It is not necessary to look at the settlement as a whole. You can look at individual funds within a settlement provided that the property is effectively ring fenced. For example, suppose there is a conventional discretionary settlement for the grandchildren of X. There is only one grandchild, Y, who is a disabled person. This settlement would not qualify because further grandchildren could be born and thereby qualify as beneficiaries during Y’s lifetime. Suppose now that the trustees appoint a discrete fund of shares to be held on life interest trusts for Y, with no power to appoint the shares to anyone else during her lifetime. Such a fund would meet the test in section 34. But only the settled property inside that fund would be taken into account. The trustees would be assessed to income tax and CGT on the rest of their income and gains in the normal way.