I have a client who is inheriting from their parent’s estate. The client has two children – one has a long-term disability and will require lifetime care. The client wants to vary their inheritance into two equal discretionary trusts - one for each son. On the first trust, for the disabled son, they will make the vulnerable person’s election. The second is intended for the other son and his family, but they will add themselves and their spouse to the potential beneficiaries, just in case. The deceased settled no other trusts.
I’m struggling to satisfy myself as to the CGT implications of having two trusts. If the Trustee’s AEA is divided between the two then half is effectively ‘wasted’ where the vulnerable person’s election means that CGT is effectively assessed on the disabled son. I’m not sure whether having the VPT as a sub-fund of a single discretionary trust would allow the Trustees to choose where to use the AEA.
Can anyone point me to useful resources or clarify a way to ensure the full Trustee AEA is able to be used solely against Trust 2?
If the client is absolutely entitled under their parent’s will, it is the client who will be the settlor for both income tax and CGT, not the deceased, so the number of qualifying settlements sharing any annual allowance will be by reference to all settlements made by the client.
With regard to the actual question, you need to refer to Schedule 1 Taxation of Chargeable Gains Act 1992 (Please note I have access only to the copy on the government website (http://www.legislation.gov.uk/ukpga/1992/12/schedule/1/enacted), which is the original 1992 version, and so the references might not be up to date). If the individual trusts fall within Paragraph 1 (trusts for the disabled) and paragraph 2 (other settlements) respectively, the existence of one will not affect the annual CGT allowance to which the other is entitled. It is only if neither falls within the parameters set out in paragraph 1 that they will share the CGT allowance (along with any other settlements made by the client).