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The government is consulting on the definition of 'vulnerable person' in relation to vulnerable beneficiary trusts.
Special treatment for income tax, capital gains tax and inheritance tax is given to trusts that exist for the benefit of at-risk individuals, but is has proven difficult to create a definition that ensures with certainty that the special treatment applies.
The term 'vulnerable person' is currently applied to two, more easily defined and recognisable groups: orphaned minors, and those with a severe physical or mental disability.
The 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 to be reformed from 2013 to create a new benefit called personal independence payment (PIP), for which there will be fewer claimants than for DLA.
HMRC are seeking options for an effective definition of 'vulnerable person' for tax purposes, and on including the enhanced rate daily living component of PIP within the definition, to help inform decisions on how best to continue the special tax treatment for trusts that provide for at-risk individuals once the DLA begins to be phased out for people of working age.
The department is also consulting on how to align inconsistencies in the qualifying conditions that limit how trustees can use trust capital and income.
Responses should be submitted by email no later than 8 November 2012.
