Vulnerable Persons trusts – income and capital gains tax benefits

Vulnerable Person (VP) trusts are highly recommended,  because they combine the benefit of retained control that is enjoyed by the trustees of a Discretionary Trust, with the tax benefits that are enjoyed by an Interest in Possession Trust.

The beneficiaries of a VP trust need not have an immediate right to the income in a VP trust, so trustees can accumulate it instead (for the future benefit of the beneficiaries). The power to accumulate is useful for any number of reasons; including:

- where the vulnerable person has a disability it can help protect benefits claims.

- reducing the risk of irresponsible spending by minors.

In a standard Discretionary Trust, such flexibility comes at the cost of relatively high tax rates, but not in a VP Trust.

For example, if a trust has (say) rental profits of £28000 and savings income of £9600, a standard discretionary trust would pay tax of £15350. With a VP trust that could be reduced to £3400, a very significant saving.

 

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