Vulnerable beneficiary election and chargeable event gains

If a vulnerable beneficiary election has been made (S37 FA 2005) in a UK resident trust where the vulnerable beneficiary has an IIP and a chargeable event gain arises at a time when the settlor is deceased is it possible to tax the chargeable event gain as if it arose in the vulnerable beneficiary’s hands thereby mitigating the 45% trust tax charge. Would top slicing apply in the calculation of the vulnerable persons’ tax liability for the calculation in S26 FA 2005?
Have any forum members come across this please?
Peter Goodman
Wilkins Kennedy LLP

I’m a little out of my depth on vulnerable beneficiary taxation but is it not the case that chargeable event gains although deemed to be income and subject to income tax such gains are not for trust law purposes “income”? If so, then the event gains do not belong to the IIP beneficiary.

Malcolm Finney

That is correct. The 5% withdrawal facility is deemed to be a return of capital rather than 'pure income’
Anne Slater-Brooks