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Who will qualify as a Vulnerable Beneficiary?

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Forthcoming changes to Disability Living Allowance will have a knock on effect on the definition of a Vulnerable Beneficiary for tax and trust purposes. The opportunity to comment on the proposals concludes in November 2012.

A consultation document has been published by HM Revenue & Customs on the proposed changes to the definition of a vulnerable beneficiary for the purpose of vulnerable beneficiary trusts.

Special rules are in place to allow Capital Gains, Income and Inheritance Tax relief on funds held in trust for a vulnerable beneficiary. A vulnerable beneficiary is either an orphaned minor or a person with a severe physical or mental disability. The current definition of a person with a severe physical or mental disability is as follows:

A person who is

• Incapable, by reason of a mental disorder within the meaning of the Mental Health Act 1983, of administering his or her property or managing his or her affairs; or

• In receipt of Attendance Allowance; or

• In receipt of the highest or middle rate care component of Disability Living Allowance (DLA).

For vulnerable beneficiaries under 65 the most commonly relied on of these criteria is the receipt of the DLA care component at the highest or middle rate but as DLA is to be abolished in 2013 following the Welfare Reform Act 2012 and replaced with the “personal independence payment” or “PIP” this creates a requirement for a replacement definition of a person with a severe physical or mental disability for the purposes of vulnerable beneficiary trusts.

It may be that a person receiving the enhanced rate of the “daily living component” of the PIP can replace a person who received the middle or highest rate of the DLA care component but the exact details of PIP have yet to be finalised.

The daily living component of the PIP complements the mobility component and both are assessable in relation to a list of specified activities. The proposed assessment activities are:

Daily living activities:

• Preparing food and drink
• Taking nutrition
• Managing therapy or monitoring a health condition
• Bathing and grooming
• Managing toilet needs or incontinence
• Dressing and undressing
• Communicating
• Engaging socially
• Making financial decisions

Mobility activities:

• Planning and following a journey
• Moving around

The current requirements that are assessed in consideration of entitlement to the care component of DLA are different in that they are linked to bodily functions:

Middle rate
For people who need:
• frequent attention with bodily functions throughout the day, or
• continual supervision throughout the day to avoid substantial danger to themselves or others, or
• prolonged and repeated attention at night in connection with bodily functions, or
• someone to be awake during the night for a prolonged period or at frequent intervals to avoid substantial danger to themselves or others.


Higher rate
• For people who satisfy the middle rate criteria for both day and night.
Alternative definitions of a person with a severe physical or mental disability are considered in depth in the consultation document and the opportunity to comment on the proposals is welcome given the current disparity between the assessment for the care component of DLA and the proposed assessment for the enhanced daily living component of the PIP. One example is the definition of a vulnerable adult given in section 59(1) of the Safeguarding Vulnerable Groups Act 2006 but this is much wider ranging than the current definition of the vulnerable adult so seems to me to be unlikely as an acceptable alternative to the current definition.
If you are interested in the in depth consultation or the opportunity to comment, the consultation document can be found at:
http://customs.hmrc.gov.uk/channelsPortalWebApp/channelsPortalWebApp.portal?_nfpb=true&_pageLabel=pageLibrary_ConsultationDocuments&propertyType=document&columns=1&id=HMCE_PROD1_032258

If you, or somebody you know, requires specialist legal advice in respect of a vulnerable person’s trust, please contact me on 0113 336 3363 or email me at clare.king@clarionsolicitors.com.
 

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