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HMRC internal manual

Trusts, Settlements and Estates Manual

From
HM Revenue & Customs
Updated
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Trust income and gains: vulnerable beneficiaries: definition of qualifying trusts - disabled person

Where property is held on trusts for the benefit of a disabled person, they will be qualifying trusts if they meet both the conditions below. The terms of the trust must ensure that the conditions will be met during the lifetime of the disabled person or until the termination of those trusts, if earlier. For example the terms of the trusts might give the trustees power to appoint capital to the disabled person at their discretion, or provide for the capital to pass to the beneficiary at a particular age. In this connection, where a settlement comprises several trusts, it is only those trusts on which property is held for the benefit of the disabled person that are relevant for the purposes of termination.

The conditions are that:

  • the property can be applied for the benefit of the disabled person, and
  • either the disabled person is entitled to all the income arising from the property or, if the disabled person is not entitled to all of it, none of the income can be applied for the benefit of anyone else.

The above conditions require property held for the benefit of a disabled person to be ring fenced. This is relevant where there is more than one beneficiary. If that is the case the property held for the benefit of the disabled person must be held in a separate fund or in some other defined part of the settled property. If it can be applied for the benefit of anyone else, in any circumstances other than those mentioned in TSEM3431, or if anyone else is entitled to the income arising from it, the trusts on which it is held will not be qualifying trusts.

A ring-fenced fund for a disabled person within a trust is not a separate trust for tax purposes.