Everything you need to know about bare trusts

What is a bare trust?

First off, a quick explainer:

A trust is a legal arrangement where one person (the trustee) looks after assets on behalf of someone else (the beneficiary).

Think of it as a safety deposit box: assets go in, and the trustee is responsible for keeping it safe and using it according to the rules of the trust.

A bare trust (sometimes called an absolute or simple trust) is the most stripped-back version of that idea. The trustee's role is purely to hold the assets until the beneficiary is old enough to take control (that's 18 in England and Wales, 16 in Scotland).

They can't change the rules, decide who gets what, or hold anything back.

When they're old enough, the beneficiary is entitled to everything: the capital, the income, the works.

Why is it called "bare"? Because it's the McVitie's Digestive biscuit of the trust world: no chocolate coating, no hidden centre - just the basics.

From a legal point of view, the beneficiary's right to the trust is "indefeasibly vested", which is a fancy way of saying it can't be taken away, watered down, or shuffled around.

A few key things to know:

• The person who sets up the trust (the settlor) chooses the beneficiary at the start. Once that's done, it's done. No swapsies.
• Most bare trusts are set up for a single beneficiary, but you can name more than one, as long as each person's share is fixed and clearly set out from the start.
• Though the trustee is the legal owner on paper, they just follow the settlor's instructions.

In many cases, the settlor can also act as the trustee. So if a grandparent sets up a bare trust for their grandchild, they can choose to look after the assets themselves. What they can't do is name themselves as the beneficiary (because when people talk about self-care, they usually mean a bubble bath - not tax fraud).

How do bare trusts work in practice?

Now we know what a bare trust is, let's look at what the process looks like in practice.

It usually starts with a short legal document: the trust deed.

This document:

• Names the settlor, the trustee, and the beneficiary
• Confirms that the trustee will hold the assets for the beneficiary's benefit.

Once the deed's signed and the assets are transferred, the trust is legally in place. No edits. No take-backs.

The assets being transferred can take many forms. It might be cash, shares, a savings account, premium bonds, or even a property. The key point is that whatever's being put into the trust is now legally held by the trustee for the benefit of the beneficiary.

The trustee manages the day-to-day admin until the beneficiary comes of age. The trustee's responsibilities could include everything from opening the savings account to managing the investments, filing the paperwork, and generally keeping everything ticking along.

They're allowed to invest the assets - and often should - but they need to act prudently and in the beneficiary's best interest. No speculative punts or Reddit stock research. Their job is to protect and grow the fund, not gamble with it.

Everything the trust earns - interest, dividends, capital growth - belongs to the beneficiary.

In some cases, it might be used early, for things like school fees or essential expenses, but only if it clearly benefits the beneficiary and aligns with the settlor's original intentions. All spending must be properly accounted for.

And when that all-important beneficiary birthday rolls around, the trustees hand it all over without delay.

No holding out for signs of "maturity". No waiting for them to outgrow their goth phase, or realise that dirty laundry does not live on the floor. If the beneficiary is legally an adult, they can take control. No ifs, no buts.

Common uses for bare trusts

Bare trusts come in handy when you want to give something to someone – usually a child – but they're not yet old enough to manage it themselves.

Typical examples include:

• Saving or investing for children. Parents and grandparents often use bare trusts to put aside money for a child's future. It might go towards university, a first flat, or just a financial head start. Because children can't hold certain assets in their own name – like shares or property – the trust acts as a legal wrapper until they come of age.
• Gifting to grandchildren. A bare trust lets you give directly to one child, without routing the funds through their parents. If you survive seven years after the gift, it's typically outside your estate for inheritance tax (more on what you need to know about tax below).
• Holding insurance for minors. Some parents set up bare trusts to receive life insurance payouts. If they die while the child is still underage, the money is protected and managed until the child is old enough to claim it outright.
• Wills involving minors. If someone leaves assets to a child, they'll often be held in bare trust until the child comes of age. The money is theirs, the trust just keeps it out of reach until they're legally allowed to handle it.
• Adult nominee arrangements. Bare trusts aren't limited to children; they're also used when one adult temporarily holds an asset on behalf of another. For instance, two friends buying a flat might agree that one name goes on the title for mortgage purposes, but both own a share, so a bare trust is set up to reflect that. You might also see it where someone temporarily holds money or assets on behalf of a partner or relative, with the understanding that it's not theirs to keep or squander. In these cases, the beneficiary is already an adult, which means they're entitled to the asset right away. There's no waiting period, no coming-of-age moment. The trustee is just the legal name on the paperwork.

In short: if you want to give something to a specific person, without strings, but they can't take it yet – or just need someone else to hold it on their behalf – a bare trust often does the job.

TL;DR: Bare trusts at a glance

• The simplest type of trust. Assets are held and managed by a trustee for a named beneficiary.
• The settlor is the person who sets up the trust and chooses the beneficiary.
• The beneficiary is entitled to everything once they reach adulthood (18 in England & Wales, 16 in Scotland).
• Trustee role is purely administrative - they look after the assets but can’t change who gets what.
• Created by a short legal document (a trust deed); once signed and funded, it can’t be changed.
• Commonly used for saving for children, passing on gifts/grandparent money, holding insurance payouts, or holding assets temporarily for someone else.

Bare trusts are one tool, but if you're looking to keep family wealth intact over the long haul, check out our guide on how to preserve wealth across generations.

How are bare trusts taxed?

Bare trusts keep things simple – and that includes how they're taxed. There's no special trust tax regime to untangle, but there are a few key rules to know.

In this section, we'll cover how income tax, capital gains tax, and inheritance tax work in a bare trust, plus who's responsible for reporting what.

Income tax

If the assets earn interest, dividends, or rental income, it's the beneficiary who's on the hook for tax, not the trustee.

That means they report it on their own Self Assessment (if they need to file one), and use their own allowances and tax bands (because yes, a child is an independent person for tax purposes).

If their income is low (and unless they're secretly running a dropshipping empire, it probably is), the result is usually little or no tax.

Trustees can choose to handle the admin by registering the trust and filing a tax return, but they don't have to. Many don't, especially if the income is small or falls within allowances.

What they must do is pass on the right figures – usually by giving the beneficiary an R185 form showing how much income was received and any tax paid on it. The beneficiary can then use that to file their return or reclaim tax if needed.

The £100 rule (for parents)

There's one important exception to all this: if the settlor is a parent and the beneficiary is their minor child, HMRC applies what's called the "£100 rule".

In short: if the income from a parent's gift exceeds £100 in a tax year, the income is taxed as the parent's, not the child's.

This is a specific anti-avoidance rule designed to stop parents from parking money in a child's name just to lower their own tax bill.

The threshold is £100 per parent, per child. So two parents could each gift assets that generate £100 of income a year without triggering the rule. Go above that, and the entire income is taxed as if the parent received it – not just the amount over £100.

This rule only applies to parents. Gifts from grandparents, aunts, uncles, or anyone else don't trigger it. So while bare trusts are often tax-efficient when used by grandparents, they're less effective for parents once the income crosses that threshold.

£100 rule in a nutshell

If a parent gifts assets to a child and they earn over £100 a year in income, HMRC taxes it as the parent’s income.

The £100 limit is per parent, per child. Two parents = up to £200 total.

The rule only applies to parents. Gifts from grandparents or other relatives don’t count.

Adult beneficiaries

If the beneficiary is already an adult, or becomes one during the life of the trust, there's no special rule. All income belongs to them outright, and they're taxed accordingly. They can ask for income to be paid directly to them, and the trustees must comply.

Capital gains tax

If the trust sells something for a profit - shares, property, a collection of vintage teapots that mysteriously appreciated - the gain belongs to the beneficiary.

They use their own annual capital gains tax (CGT) allowance and pay tax on any excess at their individual rate.

Since kids get the same CGT allowance as adults, and their income is usually low to non-existent (unless they've worked out how to make a mint flipping Labubu dolls on TikTok), it often means no tax is due.

Trustees aren't taxed themselves; they're just the admin team. They need to keep records of how much the trust made in capital gains, then hand it over. If there's tax to report, it's the beneficiary (or their guardian) who does it.

Transfers aren't disposals

In the world of capital gains, a 'disposal' just means selling, gifting, or otherwise getting rid of an asset that could trigger tax. In the case of bare trusts, handing over an asset - say, moving into the beneficiary's name - doesn't count as a disposal for CGT.

The beneficiary already owns it in the eyes of the law, so there's no tax triggered. It's just passing the parcel, not cashing it in.

But if the trustee sells the asset and hands over the cash, that's a disposal - and any gain is taxed as the beneficiary's.

No CGT birthday surprise

In other types of trust, a child becoming absolutely entitled – usually on their 18th birthday – can trigger capital gains tax, as if the asset were sold and immediately bought back.

In a bare trust, the child owns the asset beneficially from day one, even if they couldn't yet spell beneficial without adult supervision.

We'll compare bare trusts with other structures later in the guide, but for now, suffice it to say that in a bare trust, HMRC doesn't gatecrash the 18th birthday party demanding a slice of the cake.

No £100 trap here

The £100 parental gift rule only applies to income, not capital gains. So if a parent sets up a bare trust and it quietly grows like a sourdough starter left behind the radiator, the gains still belong to the child – and use their allowances.

That's why parents often choose growth-focused investments over income ones in bare trusts. The incentive structure favours fattening up in the background over regular payouts.

Adult beneficiaries

Once the beneficiary is grown up, any gain is simply their gain. They report it, they pay the tax, end of story.

Can a bare trust cut Inheritance Tax?

Yes, if used in the right way.

Put assets into a bare trust, and for IHT, it's treated like a straightforward gift – that is, a "potentially exempt transfer".

That means if the person giving the gift (the settlor) survives seven years, there's no IHT to pay.

However, if they die soon, the value of the gift is counted back into their estate and may be taxed if the total estate exceeds the IHT threshold.

That threshold – officially called the nil-rate band – is currently £325,000. Above that, anything not covered by other exemptions is typically taxed at 40%.

Example: imagine a grandparent puts £200,000 into a bare trust for their grandchild, then dies five years later; that £200,000 is added to the value of their estate. If the total ends up over £325,000, IHT may be due – though taper relief could reduce it slightly if death occurred more than three years after the gift.

One way around IHT is to fund the bare trust using the standard annual gift allowance – £3,000 per tax year, per donor.

There's also a £250 exemption for small gifts, so long as the recipient isn't getting part of your £3,000. And if the money comes from "regular surplus income", even more can be exempt without eating into those limits – but you'll need to show it really was surplus, given regularly, and not a stealth wealth transfer to try and pull a fast one on HMRC.

Bare trusts vs other trusts

Trusts come in more flavours than crisps at a motorway service station: discretionary, accumulation, interest-in-possession...and a few others that sound like they were named by a committee of tax lawyers in a windowless room.

Each has its own quirks, rules, and tax implications.

Bare trusts stand out for being the simplest: there's one beneficiary, and that person owns the lot – income and capital – from day one. That's not the case with most of the others.

In this section, we'll compare bare trusts with some of the most common alternatives, starting with the one most often lumped into the same sentence: the discretionary trust.

Bare trusts vs discretionary trusts

With a discretionary trust, the trustees are in charge, and they can dish out the income or capital to whoever they like, whenever they like, in whatever proportions they choose. Sometimes they give nothing at all.

They're like a dinner party where the host decides who gets what - and when - based on how everyone's behaving. No one has a fixed plate; no one's guaranteed a slice of anything.

You might use a discretionary trust if you want to set something aside for "my grandchildren" – plural – without having to decide how it's split. The trustees can then adjust for need, circumstance, or family drama.

Bare trusts don't play that game. You name the beneficiary from day one, and that beneficiary gets the lot as soon as they're old enough.

Read our full guide: What is a discretionary trust, and should you have one?

Tax differences

Discretionary trusts get hammered on tax. They pay 45% (or 39.35% on dividends) after a small allowance, and 20% on CGT on most gains (24% for UK residential property).

Plus, their annual capital gains exemption is as paltry as a mouse's Christmas dinner: £1,500 for 2025/26, compared to £3,000 for an individual.

Worse still, if you transfer large sums into a discretionary trust, you may trigger an immediate IHT charge of 20% on amounts exceeding the nil rate band of £325,000, and the trust can also rack up 10-year IHT charges just for existing (up to 6% of the value minus the nil rate band).

A bare trust avoids all of that.

It isn't a separate legal taxpayer. All the income and gains are taxed on the beneficiary as if they owned the assets directly. If the beneficiary is a child with no income, the tax bill could well be zero.

Bare trusts vs accumulation trusts

Accumulation trusts are when you want to delay the handover.

The beneficiary doesn't get an automatic right at 18. Instead, they become entitled at whatever age you choose: 21, 25, 30, 47 and three-quarters - you set the rule.

Until then, the trustees can use income for things like school fees or essentials, but otherwise they stockpile it.

It's handy if you want the beneficiary to slog through their twenties chasing a career, rather than coasting on a surprise windfall and becoming a vanlife influencer with an Amazon wishlist.

These trusts fall under the "relevant property" regime. That means potential IHT charges at the start, every ten years, and again when the money leaves the trust. Retained income is also taxed at the trust rate – currently 45%.

In short, compared with a bare trust, you get more control, more complexity, and a lot more tax.

Bare trusts vs interest in possession trusts

An interest in possession (IIP) trust splits the spoils. One person – the "life tenant" – gets the income as it rolls in, but the capital is locked up for someone else.

For example, your spouse might get the dividends while they're alive, but your children inherit the shares once they're gone. It's a way to keep everyone just happy enough to avoid a murder plot.

The life tenant can't raid the pot. They've got front-row seats to the income it produces, but no backstage pass for the capital.

Bare trusts, as we've seen, don't do this whole two-stage choreography. The beneficiary is entitled to the lot: capital and income, no strings attached.

Tax differences

IIP trusts can be a tax faff. Trustees pay income tax at the basic rate (currently 8.75% on dividend-type income and 20% on all other income) before handing over the money.

The income beneficiary then adds it to their own tax return. Depending on their situation, they might owe extra or be able to claim some back.

For capital gains, many IIP trusts created after 2006 are taxed under the "relevant property" rules. That means:

• A CGT allowance that's half the normal person one (just £1,500 for 2025-26).
• A potential 10-year charge on the value of the trust (essentially an inheritance tax top-up due every decade, even if no one has died).

There are exemptions - such as when the trust is set up by a will after someone dies - but those come with their own rules.

Bare trusts skip all this. There's no separate tax entity and no 10-year charges. Everything is taxed as if the beneficiary had owned the assets from the start – because legally, they did.

Trust type	Who gets what?	When do they get it?	Tax situation	Why use it?
Bare Trust	One named beneficiary gets everything – income and capital	Age 18 (16 in Scotland). No delay. No conditions.	Taxed as if the beneficiary owns it all. If they’re a child with no income, tax could be zero.	Simple, cheap, tax-friendly if the beneficiary’s on a low income.
Discretionary Trust	Trustees decide who gets what, when, and how much – nothing is guaranteed	Whenever the trustees feel like it – or not at all	45% income tax, 39.35% on dividends, 20–24% CGT, £1,500 CGT allowance, 10-year IHT charges	Flexibility, control, protects against idiots or in-laws. Comes at a tax cost.
Accumulation Trust	Trustees can stockpile income. Beneficiary gets everything at a set age (21, 25…)	At whatever age you specify. Could be 21, 30, or 47¾	Same grim tax regime as discretionary trusts: high rates and periodic IHT.	Delay handover. Encourage career-building and becoming a responsible adult.
Interest in Possession (IIP)	One person (life tenant) gets income; someone else gets the capital later	Income: right away. Capital: after life tenant dies	Trustees pay 8.75% on dividend income, 20% on all other types of income, beneficiary may owe more. CGT allowance is tiny. 10-year IHT charge possible.	Keeps life tenant comfy while preserving capital for kids. Estate planning staple.

As should be pretty clear by now, the world of trusts can feel like a maze with no exit sign. It's often worth getting professional financial or legal advice before deciding what's right for you.

Bare trusts vs junior ISAs

We've compared bare trusts with discretionary, accumulation, and interest-in-possession trusts. But in practice, the closest comparison might not be another trust at all – it's the junior ISA (or JISA).

Both follow the same core logic: once the money's in, it belongs to the child. No take-backs, no second thoughts. When they turn 18, they get the lot.

The key difference is tax.

Junior ISAs are completely tax-free. Bare trusts, as we've seen, tax the child in their own name.

This usually means no tax, but it depends on how much income or capital gains the trust produces, and there's more paperwork involved. And if a parent sets up the bare trust and it generates more than £100 a year in income, all of that income is taxed as the parent's, wiping out the tax benefit.

The upside of bare trusts is they are uncapped. Junior ISAs, on the other hand, are limited to £9,000 a year. Once you hit that ceiling, a bare trust is often the next stop.

It's also worth noting that only a parent or legal guardian can open a Junior ISA, even if the money comes from someone else. Bare trusts are more flexible: anyone can set one up for a child – grandparents, godparents, family friends, whoever's feeling generous.

In most cases, it makes sense to fill the junior ISA first; then, if there's still more to give, reach for the bare trust.

If you want to learn more about how bare trusts stack up against other options, we've compared the pros and cons of bare trusts, junior ISAs and junior SIPPs over on our YouTube channel:

Risks and downsides of bare trusts

Before setting up a bare trust, here's what you need to know about when they don't work.

They get full control at 18

Remember, in England and Wales, the beneficiary's mitts go right in the cookie jar the second they turn 18 (or 16 in Scotland).

If they want to blow it on a start-up selling scented USB sticks or bankroll a doomed techno-opera in Berlin, there's nothing anyone can do. If you want to set conditions on how the money's to be used, you need a more protective structure, like a discretionary or accumulation trust.

Or, just consider making sure that proper financial guidance is in place if your child is set to receive a large windfall.

No take-backs, no swaps

As we've covered, once a bare trust is set up, it's locked.

You can't swap out the beneficiary, split it later, or redirect it. For instance, if you put in £50,000 for a grandchild, a few years later the birth of another grandchild could mean you want to split it between the two – but that wouldn't be possible.

Instead, you'd have to set up a new bare trust and find another £50,000 (to avoid accusations of favouritism).

Also, if the beneficiary dies, the money goes to their estate, which might mean it circles back to someone you didn't intend (like an ex-son-in-law).

Other trusts let you plan for eventualities like this, but bare trusts do not.

Meanwhile, if your own finances go pear-shaped, there's no hope of dipping into the bare trust to bail yourself out.

That money's gone forever, so do not part with anything that you could end up needing.

Don't try to game the system.

You can't use a bare trust to dodge care home fees, bankruptcy, or benefit tests.

If you give away assets and later claim help, the authorities can treat it as deliberate deprivation. The same goes for debts – if you were already struggling when you transferred the money, creditors can claw it back.

They've got special needs and rely on support.

If the beneficiary relies on means-tested benefits, handing them a chunk of money outright might do them more harm than good – it could disqualify them from receiving help.

A discretionary trust for vulnerable beneficiaries is the usual fix here: it keeps the safety net in place, comes with special tax perks, and crucially, doesn't hand them the keys to the vault.

Bare trust pros and cons

Pros	Cons
Simple: easy to set up with a short trust deed	No control at 18 (16 in Scotland). The beneficiary gets full access, ready or not
Tax-friendly: income and gains are taxed as if the child owned them (often zero tax if income is low)	Irrevocable: once set up, you can’t swap beneficiaries or change terms
Flexible to set up: anyone (not just parents) can create one	Parental gifts trigger the £100 rule (income above £100 taxed as the parent’s, not the child’s)
Useful for gifts: can hold cash, shares, property, or insurance payouts	Can affect means-tested benefits if the beneficiary relies on them
Cheaper and lighter on admin than other trust types.	No protection if your own finances sour; money in a bare trust is gone for good

How to set up a bare trust

If a bare trust sounds right for your use case, the next step is setting one up.

It's one of the simpler types of trusts to create – no labyrinthine clauses or Dickensian solicitors muttering into their brandy – but you'll still want to get it right.

Here's a rundown of the steps involved:

1. Choose the asset and the beneficiary

Pick what you're giving (cash, investments, property) and who you're giving it to. Remember, with bare trusts, that person is fixed from the outset, no swapsies later.

If you've got two grandchildren, you'll need two trusts (or one with fixed shares, which is basically the same thing).

2. Pick your trustees

You can be one, but ideally appoint another – two is the Goldilocks number.

They'll be in charge of the asset until the child turns 18 (16 in Scotland), so pick people who won't go AWOL, gamble the lot, or start a new life in Paraguay. Professional trustees are an option, but they'll charge for the honour.

3. Write the trust deed

This is the legal bit.

It doesn't have to be long, but it does have to be clear. You'll want to state who's setting it up, who the trustees are, who the beneficiary is, and what the trust holds. You can DIY with a template – or pay a solicitor a few hundred pounds to do it properly.

That might sound steep, but so is the cost of accidentally leaving the wrong person your entire premium bond stash.

4. Transfer the assets

The trust isn't real until the assets move.

For cash, that might be a new child's account (held in trust); for shares or funds, your broker can transfer them into the trustees' names; for property, you'll need a solicitor to handle the paperwork and update the Land Registry.

A bare trust isn't about saying the asset is for the child - it's about actually handing it over, in legal terms.

5. Register it with HMRC

Yes, even if there's no tax bill.

Thanks to anti-money laundering rules, most bare trusts now have to be registered using HMRC's Trust Registration Service.

There are a few exceptions, but your run-of-the-mill trust for a grandchild's savings won't qualify. You've got 90 days from setup to register, so don't dawdle. It's online, and you'll need names, dates of birth, asset values, and a name for the trust (bonus points if you call it something like "The Absolutely-Not-for-a-Face-Tattoo Fund").

6. Check for tax triggers

Giving a gift into a bare trust usually doesn't spark an inheritance tax bill, unless you've already maxed out your allowance and die within seven years.

Capital gains tax is a different beast: gifting appreciated assets (like shares or property) into the trust is a disposal in HMRC's eyes. If your £10k in shares is now worth £30k, that £20k gain could come back to haunt you at tax time. Plan accordingly.

7. Store the paperwork

Keep the deed and any transfer records somewhere safe. If the trust's for a child, it's a good idea to let the other parent or guardian know, just in case you get hit by a bus or abducted by aliens.

8. Budget for costs

DIY is cheap (maybe £0–£50 for templates).

A solicitor might cost a few hundred pounds. However, if you're transferring property expect Land Registry fees and maybe conveyancing. Trusts don't have a running cost unless you hire a professional to manage it – but don't forget registration and record-keeping duties.

Bottom line

A bare trust is a simple, cheap, and surprisingly tax-friendly way to give someone money or assets – but once they hit 18 (or 16 in Scotland), they can do what they like with it.

If you're giving cash and want to stay under the £9,000 annual limit, a junior ISA is often even more tax-efficient and has fewer admin hoops.

If you want more control – say, to delay access or set conditions – you'll need a different type of trust, like a discretionary trust or an accumulation trust, but that usually means more tax and more paperwork.

So choose based on your priorities: tax perks, control, or peace of mind. Just be prepared for the day your beneficiary decides to blow the lot on a kimchi farm or a pedigree pygmy hippo that only responds to compliments in Swahili.

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