Tax and disability in the UK: review of trusts and other savings options

The nature of many people’s disability may lead to profound concerns over their future financial provision.

There is a well-established disability trust regime in the UK for putting aside savings in respect of eligible disabled people.  Disability trust regimes also operate in a number of other countries.

The UK disability trust regime offers a number of benefits - including tax treatments which tax a trust’s income and gains as if these were those of the disabled person, rather than at higher trust rates.

This paper recommends that this regime continues with some modifications – and, to help contain costs, the publication by HMRC of an approved “model trust deed” and guidance which can be used as a basis for drafting.  

However, drawing on overseas comparisons, the paper recommends the introduction of an additional simplified savings vehicle with many similarities to trusts to enable savings to be made by people for whom the complexity and cost of trusts may discourage their use.

This would mean that the peace of mind that can come from putting aside money for, say, the future of a disabled child can be available to a broad range of people, not just those who can afford the time and resources to set up and run trusts.

This discussion paper was written for the Tax Law Review Committee (TLRC) by Paul Brice. The Committee has authorised its publication to inform and promote debate in this area. The views expressed do not necessarily represent the views of the Committee. The Institute for Fiscal Studies has no corporate views.