Legal News | 11.09.25
What is a Disabled Person’s Trust?
Angela Rayner resigned last week as a result of underpaying a Stamp Duty Land Tax (SDLT) liability. Rayner believed she had paid the correct amount of SDLT on a property purchase but, owing to deeming provisions in the SDLT rules, a property already held in a Disabled Person’s Trust for her minor child meant that she was treated as already owning a property for SDLT purposes. She should therefore have paid the higher rates of SDLT which are due when someone buys an ‘additional dwelling’.
Leaving the SDLT controversy to one side, though, what is a ‘Disabled Person’s Trust’ and what are their potential benefits?
Disabled Person’s Trusts are commonly set up for the benefit of a family member who has a disability or learning difficulties. They can be set up during lifetime or through the operation of someone’s Will. The person who creates the trust (known as the settlor) puts aside funds or property which are transferred to the trustees who then look after the trust assets and ensure they are used for the benefit of the disabled person.
Providing certain conditions are met, a Disabled Person’s Trust may have several tax benefits:
- Inheritance Tax (IHT): whilst most trusts are liable to pay IHT on creation, every 10-year anniversary and when assets leave the trust, Disabled Person’s Trusts are not subject to these charges. It should, however, be noted, that the assets within the Disabled Person’s Trust will be treated as belonging to the disabled person and, as such, may be subject to IHT upon their death;
- Capital Gains Tax (CGT): ordinarily, trustees have half the annual CGT allowance of an individual. However, a Disabled Person’s Trust can utilise the full annual CGT exempt amount of the disabled beneficiary and disposals are taxed as if made by the beneficiary. This treatment applies so long as the trustees make a special election to HMRC. In addition, because the assets within a Disabled Person’s Trust are treated, for IHT purposes, as belonging to the disabled person, those assets will benefit from a CGT uplift upon the disabled person’s death; and
- Income Tax: whereas discretionary trusts can expect to pay income tax at the rate of 45%, a Disabled Person’s Trust is taxed as if the income belongs to the beneficiary. Income of the trust may therefore be taxed at the disabled person’s marginal rates and with the benefit of the disabled person’s personal allowances. Again, the trustees would need to make the necessary election to HMRC.
In addition to potential tax benefits, a Disabled Person’s Trust may also have benefits for those disabled persons in receipt of means-tested benefits, such as income support, job seekers’ allowance or universal credit. These benefits have capital limits to apply in full (and may be reduced depending on the disabled person’s assets). Unlike a direct gift made to a disabled person, which may inadvertently impact their benefit entitlements, assets held within a Disabled Person’s Trust remain outside the scope of any means-test and so can be held for the benefit of the disabled person without jeopardising their benefit entitlements.
When considering a Disabled Person’s Trust, it is essential that guidance is sought to ensure that the creation and administration of such a complex trust is carried out correctly and is suitable in the circumstances. If you would like to discuss any element of a Disabled Person’s Trust, please contact a member of the Private Client Team at Wansbroughs.
