Bare Trusts Explained

In a bare trust — sometimes called a simple trust or an absolute trust — the beneficiary has an immediate and absolute right to both the capital and the income. The trustee holds legal title but has no discretion over who benefits or when. HMRC's guidance describes the beneficiary as "absolutely entitled as against the trustee".

Three features follow from that.

The beneficiary is fixed from the outset and cannot be changed. Once the trust is created, the assets are earmarked for that person permanently. The settlor cannot substitute a different child later.

The trustee's role is administrative. Trustees look after the assets and can invest them, but they cannot decide to withhold them from the beneficiary or divert them elsewhere.

The beneficiary can demand the assets at 18 in England and Wales. At that point the trust effectively ends and the assets are theirs to do with as they wish — whether or not the settlor thinks they are ready.

That final point deserves weight. A bare trust set up for a newborn will hand over full control on an eighteenth birthday, with no mechanism to delay it.

The most common use is intergenerational gifting. A grandparent sets aside a lump sum or makes regular contributions for a grandchild, typically invested for the long term, with the intention that it will be available for university costs, a house deposit or a first step into adult life.

They are also used to hold a designated investment account for a child, and sometimes to hold an asset for someone who is temporarily unable to hold it in their own name.

For families whose main objective is reducing an estate over time rather than retaining control, a bare trust often does the job with far less administration than a discretionary trust. Our article on gifting money to family sets out the wider gifting options, and our article on estate planning puts trusts in the context of an overall plan.

Where the objective is retaining flexibility over who benefits and when, a bare trust is usually the wrong tool.

This is where bare trusts are notably simpler than most alternatives.

A transfer into a bare trust is a potentially exempt transfer, or PET. If you survive seven years from the date of the gift, it falls out of your estate entirely and no inheritance tax is due on it. If you die within seven years, the value is brought back into the calculation against your nil-rate band, which is £325,000 for 2026/27. Our article on the seven-year rule for gifts explains how taper relief works within that period.

By contrast, a transfer into a discretionary trust is a chargeable lifetime transfer, which can trigger an immediate 20% charge on value above the nil-rate band, and the trust is then subject to ten-yearly and exit charges. A bare trust has none of that. There are no periodic charges and no exit charges, because the assets are treated as belonging to the beneficiary throughout.

Gifts into a bare trust can also use the annual exemptions available for gifting. Our articles on the annual gift allowance and gifts from surplus income explain those exemptions, which can be used alongside larger PETs.

One caution: the assets do form part of the beneficiary's estate for inheritance tax purposes from the outset, since they belong to the beneficiary. For a young child this is rarely a practical concern, but it is the logical consequence of absolute entitlement.

Income arising in a bare trust belongs to the beneficiary and is taxed as theirs. A child has their own personal allowance in the same way an adult does, so in many cases modest investment income produces no tax at all. The trust itself is not taxed separately in the way a discretionary trust is.

There is one significant exception, and it catches people out regularly.

Where a parent creates a bare trust for their own unmarried minor child, the parental settlement rules apply. Income from that settlement is treated as the parent's income and taxed at the parent's rates, not the child's. HMRC's guidance on parental trusts for children sets out the position.

A de minimis limit softens this: where total settlement income from one parent does not exceed £100 in a tax year, the rule does not bite. Above £100, the whole amount is treated as the parent's income, not just the excess.

Critically, this rule applies to parents only. A gift from a grandparent, aunt, uncle or family friend is not caught, and the income is taxed as the child's using the child's own allowances. This is a large part of why bare trusts funded by grandparents are so common, and why parents wanting to save for their own children often use a Junior ISA or their own ISA allowance instead. The rules cease to apply once the child reaches 18.

Capital gains in a bare trust are treated as the beneficiary's gains. The beneficiary uses their own annual exempt amount, which is £3,000 for 2026/27, and pays at their own rates — 18% within the basic rate band and 24% above it for most disposals.

For a child with no other income or gains, this is often very efficient: modest gains can be realised each year within the annual exempt amount with no tax at all. Our article on capital gains tax explains how the annual exempt amount and rates operate, and our article on reducing capital gains tax legally covers the wider planning points.

Importantly, there is no capital gains tax charge when assets are transferred out of a bare trust to the beneficiary, because the beneficiary was already absolutely entitled to them. Nothing changes in beneficial ownership, so there is no disposal.

Note that the parental settlement rule described above applies to income, not to capital gains. Gains in a parent-funded bare trust remain the child's.

The choice usually turns on control rather than tax.

A bare trust suits you if you want simplicity, low running costs, no periodic inheritance tax charges, and you are content that the beneficiary takes the assets at 18. It is well suited to a grandparent making a straightforward long-term gift to a named grandchild.

A discretionary trust suits you if you want to retain flexibility over who benefits and when, protect assets from a beneficiary's divorce or creditors, or provide for a beneficiary who may not be able to manage money responsibly. That flexibility comes at the cost of entry, ten-yearly and exit charges, and more administration. Our article on discretionary trusts explains those charges in detail.

Trust law and trust taxation are technical, and mistakes are difficult to unwind once assets have been transferred. Setting up any trust generally warrants advice from a solicitor alongside regulated financial advice.