Special income tax, capital gains tax and inheritance tax treatment is given to trusts that are for the benefit of vulnerable people.
Special tax treatment currently applies to two recognisable groups: orphaned minors and those with a severe physical or mental disability. This latter group includes those in receipt of the highest or middle rate care component of Disability Living Allowance (DLA) and those who struggle to administer or manage their affairs for reasons of mental incapacity.
DLA is being reformed to create a new benefit from 2013 called Personal Independence Payment (PIP); and there will be fewer claimants of PIP than DLA.
To help inform decisions on how best to continue the special tax treatment for those trusts that provide for vulnerable people once DLA starts to be phased out for people of working age, the government seeks options for an effective definition of 'vulnerable person' for tax purposes and views on including the enhanced rate daily living component of PIP within the definition.
In addition, there are inconsistencies in the broader qualifying conditions that limit how the trustees can use the trust capital and income. The government seeks views on whether and how best to align these conditions.
The Law Society welcomes the opportunity to comment on vulnerable beneficiary trusts.