Finance Bill

Session 2013 - 14
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Finance Bill

Finance Bill
Schedule 42 — Trusts with vulnerable beneficiary
487

      (5)
Before subsection (7) insert—
“(6A)
The trusts on which the settled property is held are not to be treated
as falling outside subsection (2) by reason only of—
(a)
the trustees’ having powers that enable them to apply
otherwise than for the benefit of the disabled person amounts
5
(whether consisting of income or capital, or both) not
exceeding the annual limit,
(b)
the trustees’ having the powers conferred by section 32 of the
Trustee Act 1925 (powers of advancement),
(c)
the trustees’ having those powers but free from, or subject to
10
a less restrictive limitation than, the limitation imposed by
proviso (a) of subsection (1) of that section,
(d)
the trustees’ having the powers conferred by section 33 of the
Trustee Act (Northern Ireland) 1958 (corresponding
provision for Northern Ireland),
15
(e)
the trustees’ having those powers but free from, or subject to
a less restrictive limitation than, the limitation imposed by
subsection (1)(a) of that section, or
(f)
the trustees’ having powers to the like effect as the powers
mentioned in any of paragraphs (b) to (e).
20
(6B)
For the purposes of this section, the “annual limit” is whichever is the
lower of the following amounts—
(a)
£3,000, and
(b)
3% of the amount that is the maximum value of the settled
property during the period in question.
25
(6C)
For those purposes the annual limit applies in relation to each period
of 12 months that begins on 6 April.
(6D)
The Treasury may by order made by statutory instrument—
(a)
specify circumstances in which subsection (6A)(a) is, or is
not, to apply in relation to a trust, and
30
(b)
amend the definition of “the annual limit” in subsection (6B).
(6E)
An order under subsection (6D) may—
(a)
make different provision for different cases, and
(b)
contain transitional and saving provision.
(6F)
A statutory instrument containing an order under subsection (6D)
35
may not be made unless a draft of the instrument has been laid
before, and approved by a resolution of, the House of Commons.”
      (6)
For subsection (8) substitute—
“(8)
In this section—
“SSCBA 1992” means the Social Security Contributions and
40
Benefits Act 1992,
“SSCB(NI)A 1992” means the Social Security Contributions and
Benefits (Northern Ireland) Act 1992, and
“WRA 2012” means the Welfare Reform Act 2012.”
8     (1)
Section 89B (meaning of “disabled person’s interest”) is amended as follows.
45

Finance Bill
Schedule 42 — Trusts with vulnerable beneficiary
488

      (2)
For subsection (2) substitute—
“(2)
In subsection (1)(c) “disabled person” has the meaning given by
Schedule 1A to the Finance Act 2005.”
      (3)
After that subsection insert—
“(2A)
Where the income arising from the settled property is held on trusts
5
of the kind described in section 33 of the Trustee Act 1925 (protective
trusts), subsection (1)(d)(v) has effect as if for “A’s life” there were
substituted “the period during which the income from the property
is held on trust for A”.”
9     (1)
The amendments made by paragraphs 2 to 8 have effect in relation to
10
property transferred into settlement on or after 8 April 2013.
      (2)
Nothing in paragraphs 6 to 8 is to be read as preventing property transferred
into a relevant settlement on or after 8 April 2013 from being property to
which section 89 or 89A of IHTA 1984 applies.
Taxation of Chargeable Gains Act 1992
15
10
TCGA 1992 is amended as follows.
11    (1)
Section 169D (exceptions to rules on gifts to settlor-interested settlements
etc) is amended as follows.
      (2)
For subsection (3) substitute—
“(3)
The first condition is that, immediately after the making of the
20
disposal, the settled property is held on trusts which secure that,
during the lifetime of a disabled person—
(a)
if any of the property is applied for the benefit of a
beneficiary, it is applied for the disabled person’s benefit, and
(b)
either—
25
(i)
the disabled person is entitled to all of the income (if
there is any) arising from any of the property, or
(ii)
if any such income is applied for the benefit of a
beneficiary, it is applied for the disabled person’s
benefit.”
30
      (3)
After subsection (4) insert—
“(4A)
Where the income arising from the settled property is held on trusts
of the kind described in section 33 of the Trustee Act 1925 (protective
trusts), subsection (3) has effect as if the reference to the lifetime of a
disabled person were a reference to the period during which the
35
income is held on trust for the disabled person.
(4B)
The trusts on which the settled property is held are not to be treated
as falling outside subsection (3) by reason only of—
(a)
the trustees’ having powers that enable them to apply in any
tax year otherwise than for the benefit of the disabled person
40
amounts (whether consisting of income or capital, or both)
not exceeding the annual limit,
(b)
the trustees’ having the powers conferred by section 32 of the
Trustee Act 1925 (powers of advancement),

Finance Bill
Schedule 42 — Trusts with vulnerable beneficiary
489

(c)
the trustees’ having those powers but free from, or subject to
a less restrictive limitation than, the limitation imposed by
proviso (a) of subsection (1) of that section,
(d)
the trustees’ having the powers conferred by section 33 of the
Trustee Act (Northern Ireland) 1958 (corresponding
5
provision for Northern Ireland),
(e)
the trustees’ having those powers but free from, or subject to
a less restrictive limitation than, the limitation imposed by
subsection (1)(a) of that section, or
(f)
the trustees’ having powers to the like effect as the powers
10
mentioned in any of paragraphs (b) to (e).
(4C)
For the purposes of this section, the “annual limit” for a tax year is
whichever is the lower of the following amounts—
(a)
£3,000, and
(b)
3% of the amount that is the maximum value of the settled
15
property during the tax year in question.
(4D)
The Treasury may by order—
(a)
specify circumstances in which subsection (4B)(a) is, or is not,
to apply in relation to a trust, and
(b)
amend the definition of “the annual limit” in subsection (4C).
20
(4E)
An order under subsection (4D) may—
(a)
make different provision for different cases, and
(b)
contain transitional and saving provision.
(4F)
A statutory instrument containing an order under subsection (4D)
may not be made unless a draft of the instrument has been laid
25
before, and approved by a resolution of, the House of Commons.”
      (4)
For subsections (7) to (9) substitute—
“(7)
In this section “disabled person” has the meaning given by Schedule
1A to the Finance Act 2005”.
      (5)
Omit subsection (10).
30
      (6)
The amendments made by this paragraph have effect in relation to disposals
to the trustees of a settlement on or after 8 April 2013.
      (7)
But if the settlement is a relevant settlement, nothing in this paragraph is to
be read as preventing section 169D(2) of TCGA 1992 from applying in
relation to the disposal.
35
12    (1)
Paragraph 1 of Schedule 1 (application of exempt amount and reporting
limits in cases involving settled property) is amended as follows.
      (2)
In sub-paragraph (1)—
(a)
for “mentally disabled person or a person in receipt of attendance
allowance or of a disability living allowance by virtue of entitlement
40
to the care component at the highest or middle rate” substitute
“disabled person”, and
(b)
for paragraphs (a) and (b) substitute—
“(a)
if any of the property is applied for the benefit of a
beneficiary, it is applied for the disabled person’s
45
benefit, and

Finance Bill
Schedule 42 — Trusts with vulnerable beneficiary
490

(b)
either—
(i)
the disabled person is entitled to all of the
income (if there is any) arising from any of
the property, or
(ii)
if any such income is applied for the benefit
5
of a beneficiary, it is applied for the
disabled person’s benefit,”.
      (3)
After that sub-paragraph insert—
   “(1A)
The trusts on which settled property is held are not to be treated
as falling outside sub-paragraph (1) by reason only of—
10
(a)
the trustees’ having powers that enable them to apply in
any tax year otherwise than for the benefit of the disabled
person amounts (whether consisting of income or capital,
or both) not exceeding the annual limit,
(b)
the trustees’ having the powers conferred by section 32 of
15
the Trustee Act 1925 (powers of advancement),
(c)
the trustees’ having those powers but free from, or subject
to a less restrictive limitation than, the limitation imposed
by proviso (a) of subsection (1) of that section,
(d)
the trustees’ having the powers conferred by section 33 of
20
the Trustee Act (Northern Ireland) 1958 (corresponding
provision for Northern Ireland),
(e)
the trustees’ having those powers but free from, or subject
to a less restrictive limitation than, the limitation imposed
by subsection (1)(a) of that section, or
25
(f)
the trustees’ having powers to the like effect as the powers
mentioned in any of paragraphs (b) to (e).
     (1B)
For the purposes of this paragraph, the “annual limit” for a tax
year is whichever is the lower of the following amounts—
(a)
£3,000, and
30
(b)
3% of the amount that is the maximum value of the settled
property during the tax year in question.
     (1C)
The Treasury may by order—
(a)
specify circumstances in which sub-paragraph (1A)(a) is,
or is not, to apply in relation to a trust, and
35
(b)
amend the definition of “the annual limit” in sub-
paragraph (1B).
     (1D)
An order under sub-paragraph (1C) may—
(a)
make different provision for different cases, and
(b)
contain transitional and saving provision.
40
     (1E)
A statutory instrument containing an order under sub-paragraph
(1C) may not be made unless a draft of the instrument has been
laid before, and approved by a resolution of, the House of
Commons.”
      (4)
In sub-paragraph (2), for the words from the beginning to “that sub-
45
paragraph” substitute “The reference in sub-paragraph (1)”.
      (5)
In sub-paragraph (6), for the definitions of “mentally disabled person”,

Finance Bill
Schedule 42 — Trusts with vulnerable beneficiary
491

“attendance allowance” and “disability living allowance” substitute—
““disabled person” has the meaning given by Schedule 1A to
the Finance Act 2005; and”.
      (6)
The amendments made by this paragraph have effect in relation to the tax
year 2013-14 and subsequent tax years.
5
      (7)
But if the settlement is a relevant settlement, nothing in this paragraph is to
be read as preventing sections 3(1) to (5C) and 3A of TCGA 1992 from
applying in relation to the settlement as provided by paragraph 1(1) of
Schedule 1 to that Act.
Finance Act 2005
10
13
FA 2005 is amended as follows.
14    (1)
Section 34 (disabled persons) is amended as follows.
      (2)
In subsection (2), for paragraph (b) substitute—
“(b)
either—
(i)
that the disabled person is entitled to all the income (if
15
there is any) arising from any of the property, or
(ii)
if any such income is applied for the benefit of a
beneficiary, it is applied for the benefit of the disabled
person.”
      (3)
For subsection (3) substitute—
20
“(3)
The trusts on which property is held are not to be treated as failing to
secure that the conditions in subsection (2) are met by reason only
of—
(a)
the trustees’ having powers that enable them to apply in any
tax year otherwise than for the benefit of the disabled person
25
amounts (whether consisting of income or capital, or both)
not exceeding the annual limit,
(b)
the trustees’ having the powers conferred by section 32 of the
Trustee Act 1925 (powers of advancement),
(c)
the trustees’ having those powers but free from, or subject to
30
a less restrictive limitation than, the limitation imposed by
proviso (a) of subsection (1) of that section,
(d)
the trustees’ having the powers conferred by section 33 of the
Trustee Act (Northern Ireland) 1958 (corresponding
provision for Northern Ireland),
35
(e)
the trustees’ having those powers but free from, or subject to
a less restrictive limitation than, the limitation imposed by
subsection (1)(a) of that section, or
(f)
the trustees’ having powers to the like effect as the powers
mentioned in any of paragraphs (b) to (e).
40
(3B)
For the purposes of this section, the “annual limit” for a tax year is
whichever is the lower of the following amounts—
(a)
£3,000, and
(b)
3% of the amount that is the maximum value of the settled
property during the tax year in question.
45
(3C)
The Treasury may by order made by statutory instrument—

Finance Bill
Schedule 42 — Trusts with vulnerable beneficiary
492

(a)
specify circumstances in which subsection (3)(a) is, or is not,
to apply in relation to a trust, and
(b)
amend the definition of “the annual limit” in subsection (3B).
(3D)
An order under subsection (3C) may—
(a)
make different provision for different cases, and
5
(b)
contain transitional and saving provision.
(3E)
A statutory instrument containing an order under subsection (3C)
may not be made unless a draft of the instrument has been laid
before, and approved by a resolution of, the House of Commons.”
15    (1)
Section 35 (relevant minors) is amended as follows.
10
      (2)
For subsection (3)(c)(ii) substitute—
“(ii)
if any such income is applied for the benefit of a beneficiary,
it is applied for the benefit of the relevant minor.”
      (3)
For subsection (4) substitute—
“(4)
Trusts to which subsection (2) applies are not to be treated as failing
15
to secure that the conditions in subsection (3) are met by reason only
of—
(a)
the trustees’ having powers that enable them to apply in any
tax year otherwise than for the benefit of the relevant minor
amounts (whether consisting of income or capital, or both)
20
not exceeding the annual limit,
(b)
the trustees’ having the powers conferred by section 32 of the
Trustee Act 1925 (powers of advancement),
(c)
the trustees’ having those powers but free from, or subject to
a less restrictive limitation than, the limitation imposed by
25
proviso (a) of subsection (1) of that section,
(d)
the trustees’ having the powers conferred by section 33 of the
Trustee Act (Northern Ireland) 1958 (corresponding
provision for Northern Ireland),
(e)
the trustees’ having those powers but free from, or subject to
30
a less restrictive limitation than, the limitation imposed by
subsection (1)(a) of that section, or
(f)
the trustees’ having powers to the like effect as the powers
mentioned in any of paragraphs (b) to (e).
(4B)
For the purposes of this section, the “annual limit” for a tax year is
35
whichever is the lower of the following amounts—
(a)
£3,000, and
(b)
3% of the amount that is the maximum value of the settled
property during the tax year in question.
(4C)
The Treasury may by order made by statutory instrument—
40
(a)
specify circumstances in which subsection (4)(a) is, or is not,
to apply in relation to a trust, and
(b)
amend the definition of “the annual limit” in subsection (4B).
(4D)
An order under subsection (4C) may—
(a)
make different provision for different cases, and
45
(b)
contain transitional and saving provision.

Finance Bill
Schedule 42 — Trusts with vulnerable beneficiary
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(4E)
A statutory instrument containing an order under subsection (4C)
may not be made unless a draft of the instrument has been laid
before, and approved by a resolution of, the House of Commons.”
16
For section 38 substitute—
“38
Meaning of “disabled person”
5
In this Chapter “disabled person” has the meaning given by
Schedule 1A.”
17
The amendments made by paragraphs 14 to 16 have effect for the tax year
2013-14 and subsequent tax years.
18
After Schedule 1 insert—
10
“Schedule 1A
Section 38

Meaning of “disabled person”
“Disabled person”
1
“Disabled person” means—
(a)
a person who by reason of mental disorder within the
15
meaning of the Mental Health Act 1983 is incapable of
administering his or her property or managing his or her
affairs,
(b)
a person in receipt of attendance allowance,
(c)
a person in receipt of a disability living allowance by virtue
20
of entitlement to the care component at the highest or
middle rate,
(d)
a person in receipt of personal independence payment by
virtue of entitlement to the daily living component,
(e)
a person in receipt of constant attendance allowance, or
25
(f)
a person in receipt of armed forces independence
payment.
Attendance allowance
2
A person is to be treated as a disabled person under paragraph
1(b) if he or she satisfies HMRC that if he or she were to meet the
30
prescribed conditions as to residence and presence under section
64(1) of SSCBA 1992 or section 64(1) of SSCB(NI)A 1992 he or she
would be entitled to receive attendance allowance.
3
A person who is (or is treated as) a disabled person under
paragraph 1(b) is not to cease to be (or to be treated as) such a
35
disabled person by reason only of—
(a)
provision made by regulations under section 67(1) or (2) of
SSCBA 1992 or section 67(1) or (2) of SSCB(NI)A 1992 (non-
satisfaction of conditions for attendance allowance where
person is undergoing treatment for renal failure in hospital
40
or is provided with certain accommodation), or
(b)
section 113(1) of SSCBA 1992 or section 113(1) of
SSCB(NI)A 1992 or provision made by regulations under
section 113(2) of SSCBA 1992 or section 113(2) of