Bare Trust
The simplest trust structure where the beneficiary has absolute right to the assets. Often used to hold investments for children, with income and gains taxed at the beneficiary's rates.
By Omair SaoLast reviewed — rates for the 2026/27 tax year. See how we check our figures.
How It Works
The settlor transfers assets to a bare trust for a named beneficiary. The trustee holds assets but has no discretion. Income and gains are taxed at beneficiary's rates. For IHT, the transfer is a PET which falls out of the estate after 7 years.
Tax Treatment
Income and gains taxed at the beneficiary's rates, not the settlor's. Exception: parental settlement rules mean income over £100/year from a parent's gift is taxed on the parent if child is under 18.
Tax Advantages
- Income and gains taxed at beneficiary's rate (often lower)
- IHT: potentially exempt transfer — outside estate after 7 years
- No IHT entry charge (unlike discretionary trusts)
- Simple and low-cost to set up
Who Is This Suitable For?
Grandparents and non-parent family members gifting investments to children. Also for adult beneficiaries needing a trustee to manage assets.
Worked Example: A £50,000 gift from a grandparent to a five-year-old
- 1Grandmother transfers £50,000 into a bare trust for her granddaughter, naming the child's parent as trustee; invested at an assumed 4% yield it produces £2,000 of income a year.
- 2Because the money came from a grandparent, the £100 parental income rule does not apply: the income is the child's and sits well within a child's own £12,570 personal allowance, so no income tax is due.
- 3Gains on sales inside the trust use the child's own £3,000 CGT annual exempt amount.
- 4For IHT the gift is a potentially exempt transfer; if grandmother survives seven years it is outside her estate.
Result: At 18 (16 in Scotland) the granddaughter can demand the money outright, however the family feel about her plans.
Illustrative figures using the 2026/27 rules on this page, last checked on 25 September 2026.
Advantages and Drawbacks
Advantages
- Income and gains are taxed on the beneficiary, who usually has unused allowances.
- There is no entry charge, no ten-year charge and no exit charge, unlike a discretionary trust.
- Setting one up can be as simple as a short declaration of trust and an investment account in the trustee's name.
Drawbacks
- The gift is irrevocable, and the beneficiary's entitlement is absolute from day one.
- If a parent funds the trust, income over £100 a year is taxed on the parent while the child is under 18 and unmarried.
- A bare trust holding investments usually has to be registered on HMRC's Trust Registration Service, with penalties for late registration.
Notes for Limited Company Owners
Shares in your own company can be held in a bare trust for a child, and dividends on them are then the child's income — but because you are the parent, dividends over £100 a year are still taxed on you. Grandparents gifting shares avoid that rule, though a gift of shares is a CGT disposal at market value for the giver.
Common Mistakes
- A parent using a bare trust to shift investment income to a child and being surprised when HMRC taxes it on the parent.
- Treating the money as the family's — trustees may only apply it for the child's benefit.
- Not registering with HMRC within 90 days of a registrable trust being created.
Who Should Avoid It
Anyone who wants to control when or how the beneficiary receives the money, or who may need it back; a discretionary trust or a designated account respectively suit those aims better.
Official Sources
The rules on this page come from the following official pages and were checked on 25 September 2026. Read how we check our figures.
Related Calculators
Frequently Asked Questions
What are parental settlement rules?
If a parent gifts to a bare trust for their under-18 child and income exceeds £100/year, ALL income is taxed on the parent. This does not apply to gifts from grandparents or other relatives.
Can I take the money back?
No. Once in a bare trust, assets belong to the beneficiary. It is an irrevocable gift.
When does the beneficiary get access?
In England/Wales at 18, in Scotland at 16. The trustee must hand over when requested.