Inheritance Tax Act 1984 section 89

Trusts for disabled persons

Section 89 provides special inheritance tax treatment for trusts set up for the benefit of disabled persons, by deeming the disabled person to have an interest in possession in the settled property.

• Applies to property settled after 9 March 1981 where no interest in possession exists and any property or income applied during the disabled person's lifetime must be for their benefit
• The disabled person is treated as having an interest in possession, meaning the settled property forms part of their estate for inheritance tax purposes
• Trustees may apply amounts for purposes other than the disabled person's benefit up to an annual limit of the lower of £3,000 or 3% of the maximum value of the settled property, without disqualifying the trust
• The person need only have been disabled at the time the property was transferred into the trust — the special treatment continues even if the disability later ceases