What is a Vulnerable Person Election?

When setting up a trust for someone who needs extra support—whether due to disability or because they're a child who has lost a parent—there's an important tax election that could save thousands of pounds. It's called a vulnerable person election, and whilst it sounds complex, understanding it could make a significant difference to how much tax a trust pays.

Who Counts as a Vulnerable Person?

A vulnerable person falls into one of two categories: either someone under 18 whose parent has died, or a disabled person who qualifies through specific criteria GOV.UK.

For disabled individuals, qualification happens in several ways:

They must be eligible for specific benefits (even if they don't actually receive them), including Attendance Allowance, Personal Independence Payment, or Disability Living Allowance at certain rates GOV.UK. For Disability Living Allowance specifically, the person must receive either the care component at the highest or middle rate, or the mobility component at the higher rate GOV.UK.

Alternatively, someone can qualify if they're unable to manage their own affairs because of a mental health condition covered by the Mental Health Act 1983 GOV.UK.

What Makes This Election Special?

Without a vulnerable person election, trusts face punishing tax rates. They typically pay income tax at 45% on most income and capital gains tax at 20-28%. These rates are often higher than what an individual would pay on the same income.

The vulnerable person election allows trustees to pay tax as if the trust income and gains belonged directly to the vulnerable beneficiary GOV.UK. The trustees calculate what their trust tax would normally be, then work out what tax the vulnerable person would have paid if they'd received the income directly, and can claim the difference as a deduction.

This can result in substantial tax savings, particularly where the vulnerable person has little or no other income and would benefit from personal allowances and lower tax bands.

How to Make the Election

The election must be made on form VPE1, which can be completed online but must then be printed and signed by both the trustees and the vulnerable person GOV.UK. The form must be submitted to HMRC no later than 12 months after the 31 January following the tax year from which the election is to take effect.

For example, if you want the election to start from the 2024/25 tax year, you'd need to submit it by 31 January 2027 (12 months after the 31 January 2026 filing deadline).

If there's more than one vulnerable beneficiary in a trust, a separate election is needed for each one.

What Happens Next?

Once the vulnerable person election is made, trustees can then decide each tax year whether to claim the special tax treatment GOV.UK. They don't have to claim every year—only when it's beneficial to do so.

The election continues until:

• The beneficiary dies or ceases to be vulnerable

• The trust ends

• The trustees and beneficiary jointly revoke it

If the vulnerable person dies or is no longer vulnerable, the trustees must inform HMRC GOV.UK.

Why This Matters

For families with disabled relatives or children who have lost a parent, trusts provide essential financial protection whilst preserving benefit entitlements. The vulnerable person election ensures these trusts aren't penalised with excessive tax rates.

The tax savings can be considerable. A trust receiving £20,000 of dividend income might normally pay over £7,000 in tax. With a vulnerable person election where the beneficiary has no other income, the tax could be nil—a saving worth having.

Next Steps

Setting up trusts for vulnerable beneficiaries requires careful planning. The trust must meet specific conditions to qualify, and the election process has strict deadlines. Professional advice ensures you structure everything correctly from the start and don't miss valuable tax reliefs.

If you're considering a trust for a vulnerable family member, or if you're a trustee of an existing trust that might qualify, it's worth reviewing whether a vulnerable person election could reduce your tax bill. The savings often more than justify the effort involved in making the election.

The Financial Conduct Authority does not regulate Trusts

The contents of this blog do not constitute advice and should not be taken as a recommendation to purchase or invest in any of the products mentioned. Before taking any decisions, we suggest you seek advice from a professional financial adviser.