CG36543 | 2006 IHT changes: IHT treatment from 22 March 2006: trusts for the disabled

Under IHTA84/S89 and IHTA84/S89A, see IHTM42805 there is special treatment for a trust for a mentally or severely physically disabled person without an interest in possession which meets certain income and capital conditions, which are different from those in FA05/S34, which is concerned with the ‘vulnerable beneficiary regime, (TSEM3440) or TCGA92/Sch1/Para1 (CG18050) which gives a greater annual exemption. The disabled beneficiary is deemed to have an IIP.

IHTA/S89A extends this to cases where a person ‘A’ transfers property to a settlement for his own benefit and satisfies HMRC that he has a condition likely to lead to serious disability. However broadly speaking the trusts must ensure that during his lifetime A is the only beneficiary able to receive benefits from the trust; hence the conditions are narrower than those of S89.

IHTA84/S89(5) and (6) extended the definition of disabled person with regarded to property provided after 22 March 2006 to persons who would be entitled to the statutory allowances but for being in certain accommodation or being not resident in the UK.

Accordingly the first three bullets of CG36542 are in point. One should note that for S89 and S89A the test is the condition of the disabled person when the property is settled.

IHTA84/S89B defines ‘disabled person’s interest’ as including not merely the deemed IIP in S89 and S89A, but also where a severely disabled person becomes beneficially entitled to an actual IIP on or after 22 March 2006. It is also considered to extend to actual IIP where the trust would meet the tests but for the existence of the IIP. So the first three bullets of CG36542 are in point. Because these are cases of actual IIPs the death uplift for CGT mentioned in the fourth bullet also applies.