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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: claims to special tax treatment - when treatment does not apply

The special tax treatment cannot apply in respect of income tax in any tax year where the settlor is taxed on the income because they have an interest in the property.

The special tax treatment cannot apply in respect of capital gains tax in any year where the trustees would not be chargeable to capital gains tax in respect of those gains. For the years 2004-05 to 2007-08, this includes cases were the settlor has an interest in the property such that gains are chargeable on the settlor. See CG35510. For external customers the guidance is at cgmanual/CG35510.htm

The special tax treatment cannot apply in respect of CGT for the tax year in which the vulnerable person dies. It can apply in respect of income tax for that year but the election is in force only till the date of death.

The special tax treatment cannot apply in respect of CGT for 2004-05 and 2005-06 unless the trustees are resident in the UK during any part of the tax year or ordinarily resident in the UK during the tax year.

In addition, in many trusts all the income belongs to the beneficiary. If the beneficiary is liable at basic rate on the trust income the claim has no effect for income tax but may bring benefits for CGT.