Parents can set up a special trust for their children (under 18) as long as the child hasn’t been married or lived in a civil partnership.<\/p>\n
Because it won’t qualify as a trust itself (per se), it is set up as (any):<\/p>\n
Important<\/strong>: Another section contains detailed information on the common types of trust and how they work<\/a> in Great Britain (England, Scotland, Wales) and Northern Ireland.<\/p>\n<\/div>\n <\/p>\n <\/p>\n Assuming it generates a yield, the trustees will pay the Income Tax liabilities to HMRC. But, because the ‘settlor<\/a>‘ is responsible for putting assets into a trust:<\/p>\n <\/p>\n <\/p>\n There are two ways to qualify as a vulnerable beneficiary for trusts. You need to be a bereaved minor under the age of eighteen (18) or a disabled person eligible for one of these qualifying benefits (even if you do not claim them):<\/p>\n Individuals who are unable to manage their own affairs due to a mental health condition might also qualify. You should contact a medical professional covered by the Mental Health Act 1983<\/a> for further details.<\/p>\n <\/p>\n <\/p>\n HMRC applies special Income Tax treatment to trusts that have been set up for vulnerable people. But, tax relief does not apply to the person setting it up, if they are able to benefit from income generated by the trust.<\/p>\n Often, children who have lost a parent(s) will have a trust already set up via an existing ‘Will’ (or by special rules of inheritance if no will exists).<\/p>\n Note<\/strong>: In Scotland, HMRC usually treats trusts for bereaved children as ‘bare trusts<\/a>‘ for taxation purposes if there is no will.<\/p>\n<\/p><\/div>\n Trusts for vulnerable people can have more than one beneficiary named in it. If so, the vulnerable beneficiaries’ assets and income must be identified and kept separate from any beneficiaries not classed as ‘vulnerable’. Thus, only this part would qualify for HMRC special tax treatment.<\/p>\n<\/p><\/div>\n<\/div>\n <\/p>\n <\/p>\n <\/p>\n Trustees would need to use ‘vulnerable person election form (VPE1)<\/a>‘ to make a claim for special treatment (e.g. Income Tax, Capital Gains Tax). Use separate forms if there is more than one vulnerable person.<\/p>\n The trustees would need to notify HM Revenue and Customs if any of the vulnerable people are no longer classed as ‘vulnerable’, or they die.<\/p>\n HMRC Trusts Helpline<\/strong> <\/p>\n <\/p>\n Trustees get entitlement to a deduction of Income Tax when managing trusts for vulnerable beneficiaries. There are three basic steps to the calculation:<\/p>\n In some cases, it can be a complex calculation to perform. But, HMRC produces detailed working examples in the Trusts, Settlements and Estates Manual<\/a>.<\/p>\n<\/p><\/div>\n Assets held in trusts usually increase in value over time. So, selling or ‘disposing of’ (e.g. transferring ownership) trust assets can mean they become liable for Capital Gains Tax<\/a> (CGT). Even so, the trustees would only pay tax if the value goes above the relevant ‘Annual Exempt Amount’.<\/p>\n Despite having the responsibility for paying Capital Gains Tax, the trustees can claim a reduction if the trust is for vulnerable beneficiaries, by:<\/p>\n Important<\/strong>: The special treatment used for Capital Gains Tax would not apply in the tax year if the beneficiary died.<\/p>\n<\/div>\n <\/p>\n <\/p>\n <\/p>\n Trusts for vulnerable people qualify for special treatment relating to Inheritance Tax<\/a> when it involves:<\/p>\n However, the Inheritance Tax charge would not apply:<\/p>\n HM Revenue and Customs (HMRC) treats assets held in the trust as part of the estate. Thus, they may charge Inheritance Tax when the beneficiary dies.<\/p>\n Important<\/strong>: As a rule, trusts have Inheritance Tax charges for a period of up to ten (10) years (excluding trusts with vulnerable beneficiaries).<\/p>\n<\/div>\n <\/p>\n <\/p>\n <\/p>\n Note<\/strong>: The main section contains further information about how trusts and taxation works<\/a> in the United Kingdom.<\/p>\n<\/div>\n <\/p>\n <\/p>\n
\nWho is Responsible for Paying Income Tax?<\/h2>\n
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\nQualifying as Vulnerable Beneficiaries<\/h2>\n
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\nSpecial Tax Treatment for Trusts<\/h5>\n
What if there are Multiple Beneficiaries?<\/h5>\n
\nHow to Claim the Special Tax Treatment?<\/h4>\n
\n Telephone: 0300 123 1072<\/a>
\n Outside UK: +44 300 123 1072<\/a>
\nMonday to Friday: 9am to 5pm
\n\tClosed weekends and bank holidays<\/a><\/p>\n
\nHow to Make Income Tax Deductions<\/h5>\n
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Assets and Capital Gains Tax (CGT)<\/h5>\n
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\nSpecial Inheritance Tax Treatment<\/h2>\n
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\nRelated Help Guides<\/h4>\n
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