For families with disabled loved ones, financial planning requires a sensitive and strategic approach.
A lesser known yet incredibly powerful tool is the Disabled Person’s Trust.
More than a tax-efficient structure, it is a legal vehicle to safeguard long-term financial stability without jeopardising entitlement to benefits.
(Read Time: Approx. 5 minutes)
Topics Discussed:
- How Disabled Person’s Trusts offer tax relief and protect benefit entitlements
- Who qualifies and why this trust might be ideal for families with disabled dependants
What Is a Disabled Person’s Trust
A Disabled Person’s Trust is a type of trust set up specifically for the benefit of someone who is legally defined as a ‘disabled person’ under UK law.
This structure provides financial support while ensuring the beneficiary remains eligible for state benefits and care support.
According to HMRC, a trust qualifies as a Disabled Person’s Trust if it is for someone who is:
“…entitled to Personal Independence Payment, Disability Living Allowance, Attendance Allowance or similar benefits, or who is, in the opinion of a medical practitioner, likely to be in need of care due to a mental disorder or physical disability throughout their life.”
— HMRC: Trusts for vulnerable people
This definition is broad, allowing inclusion of a wide range of conditions. These might include:
- Autism and neurodivergent conditions
- Learning disabilities
- Long-term physical impairments
- Chronic mental health conditions
To receive the full tax advantages, the trust must be created mainly for the benefit of the disabled person.
It is important to note that the person does not have to be severely disabled; they only need to meet the legal criteria under section 89 of the Inheritance Tax Act 1984.
Most importantly, the disabled person does not legally own the trust’s assets. This means:
- Their means-tested benefits remain unaffected
- They are protected from losing care support
- Their assets are shielded from external claims or financial misuse
Key Tax Benefits You Need to Know
One of the most attractive features of a Disabled Person’s Trust is its tax efficiency.
Compared to standard discretionary trusts, a Disabled Person’s Trust offers several advantages:
- No Inheritance Tax (IHT) on creation: Typically, transferring assets above the nil-rate band (£325,000) into a trust would attract IHT. With a Disabled Person’s Trust, this does not apply.
- No 10-year periodic charge: Most trusts face a charge of up to 6% every 10 years. This is waived for a Disabled Person’s Trust.
- No entry charges: Where other trusts may face a 20% charge when large gifts are made into them, Disabled Person’s Trusts are exempt, provided the person making the gift survives for seven years.
- Benefits protection: Funds held in the trust do not count towards the disabled person’s assets for the purpose of assessing eligibility for means-tested benefits.
This makes a Disabled Person’s Trust not just a tax-saving option but also a protective legal structure for long-term care.
Who Can Set One Up and How It Works
Disabled Person’s Trusts must be set up by a solicitor, as they fall under a category of regulated legal activities.
However, not all solicitors understand the full tax implications and opportunities available with this type of trust.
This is why initial tax advice is a crucial first step.
To set up a Disabled Person’s Trust, the following conditions must be met:
- The beneficiary must meet the legal definition of a disabled person.
- The trust must be created primarily for their benefit.
- Trustees are appointed to manage the trust funds on the beneficiary’s behalf.
The trustees may use the funds to pay for housing, education, therapy, or any support the beneficiary may need.
Although others can be named as potential beneficiaries, the disabled person must always remain the main focus of the trust.
This condition is what preserves the favourable tax treatment.
4. You Can Keep UK Property (But Watch the Rules)
Many people think they need to sell their UK properties before moving overseas.
That’s not the case. You can retain ownership of UK property, but you must declare any income correctly.
Rental income from UK property is still taxable in the UK, even if you are non-resident.
You may need to register under the non-resident landlord scheme, and you’ll continue to file annual Self-Assessment tax returns.
When you eventually sell, UK capital gains tax will apply.
Make sure the structure is right, and the reporting is correct. HMRC has tightened its grip on overseas landlords in recent years.
Angela Rayner’s Story and Why It Matters
Angela Rayner, who until recently served as the Deputy Leader of the Labour Party, had established a Disabled Person’s Trust for her son, who lives with a disability.
While she has now stepped down from her role following political controversy, her use of a Disabled Person’s Trust brought welcome public attention to this important form of legal protection.
Reports confirm that the trust was established to ensure her son’s financial future is secure without jeopardising the disability benefits he is entitled to.
The Disabled Person’s Trust serves as a safeguard, ensuring long-term care and financial planning can co-exist without interference from personal or political changes.
Who Should Consider a Disabled Person’s Trust
This type of trust is worth exploring if you have a child or relative who:
- Has autism or a learning disability
- Lives with chronic physical or mental health conditions
- Receives state benefits for care or mobility
- Is likely to need lifelong financial and care support
It is not necessary for the condition to be severe. As long as the person qualifies under the legal criteria, a Disabled Person’s Trust can be set up.
This trust allows families to plan responsibly for the future without compromising access to state support.
Real World Benefits for Families
Families often worry about what will happen to a loved one who is disabled when they are no longer around.
A Disabled Person’s Trust answers that concern by offering:
- A protected pot of money, separate from the person’s own finances
- Continued access to disability benefits and public care
- Flexible financial support controlled by trusted individuals
- A legally compliant, tax-efficient structure
Rather than simply gifting assets to a disabled person, which could affect their benefits, this trust ensures the funds are used for their benefit without negatively impacting their entitlement.
Summary
Disabled Person’s Trusts offer a rare blend of legal protection and tax efficiency.
They enable families to provide for disabled loved ones while preserving their access to benefits and care.
Angela Rayner’s trust arrangement highlighted how effective this tool can be, especially when families need peace of mind about the future.
If you are considering setting up a Disabled Person’s Trust, it is vital to receive the right tax guidance before speaking with a solicitor.
Get in touch with us at tax expert for help setting up a trust: we can refer you to our in-house solicitors who specialise in these matters.
Fill out our form here for any questions, email us at info@taxexpert.co.uk, or message us on our WhatsApp for out of office hours.
Kind regards,
Ilyas Patel