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.
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.
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.