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Bare Trusts for Children: Pros and Cons

· 29 min

Note: The following scenario is fictional and used for illustration.

Emma, a 42-year-old accountant from Leeds, faced an unexpected dilemma when her mother announced she wanted to gift £15,000 to each of Emma's two daughters, aged 8 and 11. Emma's mother had read online that bare trusts were "tax-efficient" and suggested setting them up for the grandchildren.

Emma researched and discovered that with a bare trust, her daughters would gain full control of the money at age 18—with no restrictions, no trustee discretion, and no ability to delay the transfer. The prospect of her daughters receiving £15,000 each at 18, regardless of their maturity, made Emma anxious. Was this really the right structure?

Research shows that 758,000 18-23 year-olds have yet to claim matured Child Trust Funds worth £2,242 each on average, suggesting many young adults struggle to manage early financial windfalls responsibly.

This guide explains what bare trusts are, their advantages and disadvantages, the critical £100 parental settlement rule, HMRC registration requirements, and when alternatives work better for your family.

Table of Contents

Contents

What is a Bare Trust for a Child?

A bare trust is a simple trust arrangement where a trustee holds assets in their name for a child who has absolute entitlement to both capital and income. According to HMRC's Trust Manual, a bare or simple trust is one in which each beneficiary has an immediate and absolute title to both capital and income.

The defining feature of a bare trust is that the child legally owns the assets immediately, even though they can't access them until they reach the age of majority. The trustee acts like a nominee, holding and managing the assets in the child's best interest until the child is old enough to take control.

In England and Wales, the beneficiary gains full control at age 18. In Scotland, the age is 16. Once they reach that age, the child can demand all trust assets immediately, and trustees have no power to refuse.

Common uses for bare trusts include grandparent gifts, investment portfolios for minors, and property held for children. For example, a grandfather might set up a bare trust with £10,000 in shares for his 5-year-old granddaughter. She legally owns them from day one, but the trustee manages the investments until she turns 18.

Understanding this immediate ownership is crucial. Unlike other trust types where trustees retain discretion, with a bare trust the child's entitlement is absolute and cannot be changed.

How Bare Trusts Work: The Basics

A bare trust involves three parties working within a fixed legal structure.

The settlor is the person gifting the assets—typically a parent, grandparent, or other family member. The trustee holds legal title to the assets and manages them until the child reaches majority. The beneficiary is the child who owns the assets immediately but can't access them until age 18 in England and Wales (16 in Scotland).

Bare trusts are irrevocable. Once you name a beneficiary, you cannot change it, even if circumstances change dramatically. If you have more children, if the beneficiary becomes estranged, or if your family situation transforms, the original beneficiary retains their absolute entitlement.

Trustees have specific duties under a bare trust. They must act in the child's best interest, keep trust assets completely separate from their own, invest prudently, maintain accurate records, and provide full accounts to the beneficiary when they turn 18.

What happens at age 18 is critical. The beneficiary gains an absolute right to demand immediate transfer of all assets. Trustees cannot refuse, delay, or impose conditions, even if they believe the beneficiary is financially irresponsible or likely to squander the inheritance.

Consider Sarah, who transferred £20,000 to her brother James to hold as trustee for Sarah's daughter Lily, aged 10. James invests the money carefully over eight years. Any income and gains are taxable on Lily, using her personal allowance. When Lily turns 18, she can demand all assets immediately. If she wants to withdraw the entire sum to fund a gap year, James must comply, regardless of his concerns about the decision.

The tax responsibility typically falls on the child. Income and capital gains from bare trust assets are taxed on the beneficiary, not the trustee. The major exception is the parental settlement rule, which we'll explore in detail later.

The Advantages of Bare Trusts for Children

Bare trusts offer several compelling benefits, particularly for specific family situations.

Simplicity is a major advantage. Bare trusts require minimal administration, no complex trust tax returns in most cases, and straightforward setup. Unlike discretionary trusts with their ongoing compliance requirements, bare trusts are relatively hands-off once established.

For inheritance tax planning, gifts to bare trusts are treated as Potentially Exempt Transfers (PETs). If you survive seven years after making the gift, there's no inheritance tax on that transfer. This makes bare trusts an effective tool for reducing your estate's IHT liability.

Unlike discretionary trusts, bare trusts have no 10-year anniversary charges. Discretionary trusts face periodic IHT charges of up to 6% every decade. With a bare trust, once the gift is complete and you've survived seven years, there are no further IHT implications.

The child benefits from their full capital gains tax allowance. For the 2024-25 tax year, individuals have a £3,000 annual CGT exemption. In contrast, discretionary trusts only receive half that amount—£1,500. This difference can result in significant tax savings on investment growth.

Income tax efficiency is exceptional when grandparents or other non-parents create the trust. They completely avoid the parental settlement rules, meaning all income is taxed using the child's personal allowance. For a child with no other income, this typically results in zero tax on trust income up to £12,570 per year.

While the child is a minor, trustees provide responsible management and protection. This prevents direct access to assets during vulnerable years while still securing the child's legal ownership.

Bank account exemptions simplify compliance further. Cash deposits at UK banks and building societies don't require HMRC Trust Registration Service registration, reducing administrative burden for simple savings arrangements.

Consider this scenario: Grandparents gift £30,000 to a bare trust for their three grandchildren—£10,000 each. If the grandparents survive seven years, the entire gift falls outside their estate for inheritance tax purposes. Investment income is taxed on the children using their personal allowances, likely resulting in zero tax. There are no 10-year anniversary charges, and each child can use their full £3,000 CGT allowance as investments grow.

These advantages make bare trusts particularly attractive for modest gifts from grandparents to young children in stable family situations.

The Disadvantages of Bare Trusts for Children

Bare trusts come with significant limitations that can create serious problems if you don't anticipate them.

The irrevocable beneficiary designation is perhaps the most restrictive feature. Once you name a beneficiary, you cannot change it under any circumstances. If you have more children after setting up the trust, if the beneficiary becomes estranged from the family, if they develop addiction issues, or if circumstances change in any way, the original beneficiary retains absolute entitlement.

The age 18 handover in England and Wales (16 in Scotland) creates the most anxiety for families. Your child gains absolute control at majority regardless of maturity level. Trustees cannot delay the transfer, impose conditions, or retain any discretion. As one financial adviser notes, "the inflexibility of bare trusts means that caution should be exercised particularly where large sums are involved".

What's the risk? An immature 18-year-old may spend their inheritance irresponsibly, fall victim to financial exploitation, make poor investment decisions under peer pressure, or simply lack the judgment to manage substantial sums. Trustees watch helplessly as poor decisions unfold.

Consider this example: A parent sets up a bare trust with £50,000 for their daughter at age 12. At 18, the daughter is at university, under pressure from friends, and demands the entire £50,000 to fund a gap year trip and purchase a car. The trustees believe this is unwise—she'd be better served using the money for a house deposit in a few years. But they have no power to refuse. They must hand over all assets immediately.

The parental settlement rule creates unexpected tax bills for parents who create trusts for their own children. If income exceeds £100 per year, all income—not just the excess—is taxed on the parent at the parent's marginal rate. This can transform what seemed like a tax-efficient structure into a tax liability.

Unlike discretionary trusts, trustees have zero discretion to adapt to changing circumstances. They can't decide to delay distributions, change beneficiaries, or respond to unexpected family situations. The structure is completely inflexible.

Registration requirements add administrative burden. Investment-based bare trusts must be registered with HMRC's Trust Registration Service within 90 days, with penalties of £100 or more for non-compliance. This creates additional complexity that many families don't anticipate.

If the child dies before age 18, the assets form part of their estate for inheritance tax purposes. Unlike discretionary trusts where assets might be protected, bare trust assets are fully exposed.

The statistics on young adults and financial windfalls are sobering. 758,000 young people aged 18-23 have yet to claim matured Child Trust Funds worth an average of £2,242 each. This suggests many young adults struggle with financial responsibility even for modest sums—raising questions about handing over larger inheritances at 18.

These disadvantages don't make bare trusts wrong for everyone. But they require honest assessment of your family situation, the sums involved, and your child's likely maturity at age 18.

The £100 Parental Settlement Rule Explained

The parental settlement rule catches many parents by surprise, transforming what they thought was a tax-efficient gift into a personal tax liability.

Section 629 of the Income Tax (Trading and Other Income) Act 2005 states that if a parent creates a bare trust for their minor unmarried child and income exceeds £100 per year, all income is taxed on the parent at the parent's marginal rate.

This is an all-or-nothing rule. If trust income is £100 or less, the child is taxed on it, typically resulting in zero tax due to the child's personal allowance. But if income reaches £101, the entire amount—not just the £1 excess—becomes taxable on the parent.

The £100 limit applies per parent, per child. This means a mother and father can each gift assets generating up to £100 income per child. For one child, the combined family limit is £200 per year (£100 from each parent). For two children, it's £400 total (£100 per parent per child).

Here's how the mathematics work in practice: Suppose a father gifts £5,000 to a bare trust for his 14-year-old son. The money is invested in dividend-paying shares generating £105 per year. Because the income exceeds £100, all £105 is taxed on the father at his marginal rate. If he's a higher-rate taxpayer at 40%, he'll pay £42 in tax. Had the grandmother set up the identical trust, all £105 would be taxed on the son at 0% within his personal allowance—saving £42 annually.

Who does the rule apply to? Only parents and step-parents creating trusts for their own minor unmarried children. It specifically excludes grandparents, aunts, uncles, godparents, and other relatives. This exemption makes bare trusts significantly more attractive when grandparents are the settlors.

HMRC's Trust Manual confirms that the parental settlement rules only apply to income. Capital gains are treated differently. Even when a parent creates the bare trust, capital gains are always taxed on the child using the child's CGT allowance, currently £3,000 per year. This means the parental settlement rule doesn't affect investment growth—only income like dividends and interest.

Once the child marries or reaches age 18, the parental settlement rule no longer applies. From that point forward, all income is taxed on the child regardless of who created the trust.

There's a practical workaround for parents who want to create bare trusts while avoiding the £100 trap. Focus on low-income investments that emphasize capital growth rather than dividends or interest. Growth stocks, certain investment trusts, or capital accumulation funds can generate substantial long-term returns while producing minimal annual income, keeping you safely under the £100 threshold.

Another strategy is to structure gifts from grandparents rather than parents whenever possible. If your parents want to help your children financially, having them set up the bare trust directly eliminates the £100 rule entirely.

Understanding this rule is essential before creating any bare trust. The difference between £99 and £101 of annual income is the difference between zero parental tax and potentially hundreds of pounds in tax liability each year.

HMRC Trust Registration: What You Need to Register

Since September 2022, bare trusts have faced new registration requirements that create compliance obligations for many families.

The general rule is that bare trusts classified as "express trusts" must register with HMRC's Trust Registration Service unless they fall under specific exemptions.

You must register investment-based bare trusts. This includes portfolios of stocks and shares, mutual funds and unit trusts, investment bonds, and property held on bare trust for children. These arrangements create express trusts that trigger registration requirements.

The critical exemption applies to bank and building society cash deposit accounts. HMRC specifically excludes bank accounts for minors from TRS registration requirements. This exemption applies to any account opened by UK banks, building societies, credit unions, or National Savings and Investments (NS&I) for children. The exemption exists because requiring registration for every child's savings account would create unreasonable administrative burden for families.

Child Trust Funds and Junior ISAs don't require registration either, but for a different reason—they're not legally classified as trusts under HMRC's definition.

Registration must happen within 90 days of creating the trust. Miss this deadline and you face penalties starting at £100, with further penalties accumulating if you don't rectify the situation. Statistics show that 115,000 trusts were registered in the 12 months to March 2024, down from 452,000 the previous year after the initial September 2022 registration deadline passed.

When you register, you need to provide settlor details including full name, date of birth, and National Insurance number. You'll need the same information for all trustees, plus full beneficiary details including the child's name, date of birth, and National Insurance number if they have one. You'll also need to specify the types of assets held in the trust.

Here's a practical example: A parent opens two accounts for their 10-year-old son. Account one is a building society savings account with £3,000. Account two is an investment account with £10,000 in shares. The building society account is exempt from TRS registration—no action required. The investment account must be registered within 90 days, or the parent faces penalties.

The registration process happens through HMRC's online portal. Most families can complete it in under an hour once they've gathered the required information. There's no fee to register.

Once registered, you have ongoing obligations. You must update the registration if trustees change, if beneficiaries change (not possible with bare trusts, but applicable if you incorrectly registered a discretionary trust as bare), or if there are material changes to trust assets. You must also keep the registration current, even if the trust doesn't generate tax liabilities.

This registration requirement is relatively new, and many families with existing bare trusts haven't complied. If you have an investment-based bare trust created before September 2022, you should register it now if you haven't already. Better late than never, and the penalties increase with time.

Bare Trusts vs Discretionary Trusts: Which is Better?

Choosing between bare trusts and discretionary trusts depends on your priorities around control, tax treatment, and flexibility.

Here's a comprehensive comparison:

Feature Bare Trust Discretionary Trust
Beneficiary flexibility Fixed—cannot change Trustees can add or remove beneficiaries
Age of access 18 in England/Wales, 16 in Scotland—mandatory Trustees decide, can defer past age 18
IHT on gift Potentially Exempt Transfer (no IHT if you survive 7 years) Chargeable Lifetime Transfer (20% tax if over £325,000)
10-year IHT charges None Up to 6% every 10 years on value above nil-rate band
Income tax On child (or parent if parental settlement rule applies) Trust taxed at 45% (distributions taxed at beneficiary's rate)
CGT annual exemption Child's full allowance (£3,000) Trust's half allowance (£1,500)
TRS registration Yes, unless cash deposit account Yes
Complexity Simple, minimal ongoing admin Complex, annual trust tax returns required
Trustee control None after age 18 Trustees retain full control indefinitely

Bare trusts work best for small to moderate gifts, typically under £50,000. They're ideal when you're confident the child will be responsible at 18, when the settlor is a grandparent or other non-parent (avoiding the £100 rule), and when you want IHT simplicity without ongoing charges.

Discretionary trusts are superior for large sums over £100,000 where loss of control at age 18 creates serious risk. They're essential when you have concerns about the child's potential maturity, lifestyle, or vulnerability to exploitation. They offer crucial flexibility when you might have more children in the future or when you're navigating second marriages and blended families.

Consider these contrasting scenarios:

Bare trust scenario: A grandmother wants to gift £10,000 to each of her four grandchildren to help with their future education or first homes. The children range from age 5 to 12, and their parents demonstrate strong values and financial responsibility. The grandmother expects the children will be raised well. She sets up four bare trusts, one for each grandchild. The gifts are PETs for IHT purposes. Income is taxed on the children using their personal allowances. There are no 10-year charges. At 18, each child receives their £10,000 plus growth. The risk of poor decisions at 18 is acceptable given the moderate sum involved.

Discretionary trust scenario: A parent is leaving £200,000 to their only child in their will. The child is currently 8 years old. The parent worries about the child receiving such a large sum at age 18, particularly if the parent dies when the child is still young and hasn't developed financial maturity. They establish a discretionary trust in their will with trusted family members as trustees. The trustees can distribute funds for education, housing, or other needs before age 18. They retain power to delay full distribution until age 25, 30, or whenever they judge the beneficiary is ready. The flexibility is worth the extra tax complexity.

As one trust specialist observes, "Up until now, it has been relatively unusual for people to use bare trusts, as discretionary trust offers the trustees significantly more control". That control becomes invaluable when substantial wealth is involved.

The choice isn't about which trust is objectively better. It's about which structure aligns with your specific situation, your comfort with risk, and your family dynamics.

When Bare Trusts Make Sense (and When They Don't)

Making the right decision requires honest assessment of your circumstances against clear criteria.

Bare trusts make sense in these situations:

Grandparent modest gifts are the sweet spot for bare trusts. When a grandparent wants to gift £5,000 to £20,000 per grandchild, the structure is ideal. The grandparent avoids the £100 parental settlement rule entirely, creates a simple IHT-efficient gift, and provides for grandchildren without excessive complexity. For example, a grandmother gifts £10,000 to each of her four grandchildren via bare trusts. The total £40,000 leaves her estate if she survives seven years. Each child's trust income is taxed at 0% using their personal allowances. The grandchildren receive meaningful support without the family facing burdensome administration.

Low-income investments work well within the parental settlement rule constraints. If you're a parent who wants to create a bare trust but invest in assets focused on capital growth rather than income, you can stay under the £100 threshold. Consider a parent investing £15,000 in growth stocks generating only £60 per year in dividends. The child is taxed at 0% on that income within their personal allowance. The bulk of returns come as capital gains, taxed on the child using their £3,000 CGT allowance. The structure remains tax-efficient despite parental settlement rules.

Single child in stable families reduces the flexibility concerns. If you have one child, no plans for more, and a stable marriage, the inability to change beneficiaries matters less. The gift is clearly for your only child, and family circumstances are unlikely to change dramatically.

Confidence in the child's likely maturity makes the age 18 handover acceptable. If your family demonstrates strong financial values, the child shows early signs of responsibility, and you're comfortable with 18-year-olds making significant financial decisions, a bare trust offers simplicity without unacceptable risk. The amount matters here—£15,000 at 18 is different from £150,000.

Bank accounts for simplicity allow you to avoid TRS registration entirely. A grandparent opening a building society account with £5,000 for a grandchild creates a bare trust that's exempt from registration, tax-efficient for the grandparent-settlor, and completely straightforward to administer.

Bare trusts don't make sense in these situations:

Large inheritances expose children to serious risk. When you're dealing with £100,000, £200,000, or more, handing full control to an 18-year-old creates unacceptable danger of exploitation, poor decisions, or long-term financial harm. A discretionary trust allows trustees to control access well into the beneficiary's 20s or 30s, releasing funds gradually as the beneficiary demonstrates maturity. For instance, a £200,000 inheritance left in a discretionary trust can be managed by experienced trustees who release funds for education, house deposits, or business ventures when appropriate—not automatically at 18.

Parents creating trusts with high-income assets triggers the parental settlement rule harshly. If you're a parent setting up a trust with dividend portfolios generating £1,000+ annually, all that income becomes taxable on you. At higher-rate tax (40%), you'd pay £400 annually—far more than the child would pay using their personal allowance. This defeats the purpose of the trust structure.

Uncertain family circumstances demand flexibility that bare trusts can't provide. If you might have more children, if you're in a second marriage with potential for further children, or if family relationships are complex, the irrevocable nature of bare trusts creates problems. A discretionary trust allows you to add beneficiaries, adjust distributions based on need, and respond to changing circumstances.

Children with demonstrated irresponsibility or vulnerability make age 18 handover dangerous. If a child struggles with addiction, makes consistently poor financial decisions, or shows vulnerability to manipulation, giving them full control at 18 invites disaster. A discretionary trust protects the inheritance while supporting the child appropriately.

Special needs children require ongoing support beyond age 18 and protection of means-tested benefits eligibility. Bare trusts undermine both goals. Discretionary trusts for special needs beneficiaries preserve benefits while providing supplemental support throughout the beneficiary's life.

Ask yourself these decision framework questions:

How much are you gifting? Under £50,000 makes a bare trust viable. Over £100,000 points toward discretionary structures.

Who is the settlor? Grandparents, aunts, uncles, and other non-parents avoid the £100 income rule entirely, making bare trusts more attractive. Parents need to evaluate the income implications carefully.

What type of assets? Cash and low-income growth investments work well in bare trusts. High-dividend portfolios may not, especially if parents are settlors.

How mature is your child likely to be at 18? If you're confident they'll demonstrate good judgment, bare trusts offer acceptable risk. If you have concerns about maturity, lifestyle, or vulnerability, discretionary trusts provide essential protection.

Might circumstances change? Stable families with fixed situations can accept bare trust inflexibility. Families facing potential changes need discretionary trust adaptability.

Your honest answers to these questions will guide you to the right structure for your family.

Setting Up a Bare Trust: Practical Steps

If you've decided a bare trust is appropriate, here's how to establish one correctly.

Step 1: Confirm a bare trust is right for your situation. Review the decision framework from the previous section. Consider whether Junior ISAs, designated bank accounts, or discretionary trusts might serve your purposes better. Don't create a bare trust just because it's simple if the structure doesn't match your long-term goals.

Step 2: Choose trustees carefully. Select one or two responsible adults who understand their obligations. Often these are parents, grandparents, or trusted family friends. Trustees must be over 18, financially competent, and willing to act in the child's best interest for potentially 18 years. Consider appointing co-trustees for accountability and continuity if one trustee becomes unable to serve.

Step 3: Draft the bare trust deed. You can use template documents available online for £0-£50, or instruct a solicitor to draft a bespoke deed for £150-£500. The deed must specify the settlor's full name and details, the trustee's name and contact information, the beneficiary's full name and date of birth, a clear description of assets being transferred, and confirmation that the beneficiary has absolute entitlement at age 18 in England and Wales (16 in Scotland). All parties should sign the deed with independent witnesses observing the signatures.

Step 4: Transfer assets to trustees. Open accounts or transfer assets in the trustees' names with clear designation "as trustees for [child's name]." If you're transferring shares, update the share registry. If you're transferring cash, open new accounts in the trustees' names as trustees. Keep meticulous records of all transfers with written confirmation of each asset movement and dated documentation.

Step 5: Register with HMRC if required. Determine whether your bare trust needs TRS registration using the guidance from earlier sections. Investment-based trusts must register within 90 days. Cash deposit accounts at banks and building societies are exempt. Register online through HMRC's Trust Registration Service portal with settlor, trustee, and beneficiary details plus asset descriptions. There's no fee to register, but penalties apply for late registration.

Step 6: Manage the trust responsibly. Trustees must invest and manage assets prudently in the child's best interest. Keep trust accounts and records completely separate from personal finances. File tax returns if required—typically the beneficiary's self-assessment if income or gains exceed their allowances. Provide annual statements to the beneficiary once they turn 18 showing the full account of income, gains, and asset values.

Step 7: Transfer assets at age 18. The child can demand assets at any time after turning 18 in England and Wales (16 in Scotland). Trustees must comply immediately with any request. Provide a complete accounting of all income, gains, expenses, and current assets. Transfer legal ownership to the child's name with proper documentation.

The costs are modest. A DIY bare trust using templates costs £0-£50. A solicitor-drafted deed typically costs £150-£500 depending on complexity and location. TRS registration is free. Ongoing costs are minimal unless you appoint professional trustees, which would incur annual fees.

One alternative worth considering is including bare trusts in your will rather than creating them during your lifetime. You can establish trusts that activate on your death, holding assets for children or grandchildren until they reach 18. This approach avoids immediate loss of control over assets while still providing structured inheritance for young beneficiaries.

WUHLD's will platform can incorporate trust provisions for straightforward situations, though we recommend solicitor review for complex trust structures or large estates. Understanding your options helps you make informed decisions about protecting your children's inheritance.

Frequently Asked Questions

Q: What is a bare trust for a child?

A: A bare trust is a simple trust arrangement where assets are held in a trustee's name for a child who has absolute entitlement to both capital and income. The child gains full control at age 18 in England/Wales (16 in Scotland), and the trustee must hand over assets on demand at that point.

Q: Do I have to pay tax on a bare trust for my child?

A: Under the parental settlement rules, if you set up a bare trust for your minor unmarried child and income exceeds £100 per year, all income is taxed as yours at your tax rate. If income stays below £100, no tax applies. Grandparents and others don't face this £100 limit.

Q: Does a bare trust for a child need to be registered with HMRC?

A: Investment-based bare trusts (stocks, shares, portfolios) must be registered with HMRC's Trust Registration Service within 90 days of creation. However, bank or building society cash deposit accounts for children are specifically exempt from registration requirements.

Q: What happens to a bare trust when the child turns 18?

A: At age 18 (16 in Scotland), the child has the legal right to demand all trust assets immediately. Trustees have no power to refuse or delay the transfer. The trust doesn't automatically end, but the child gains absolute control regardless of maturity concerns.

Q: Can I change the beneficiary of a bare trust for my child?

A: No. Bare trusts are irrevocable—once you name a beneficiary, you cannot change it. If you want flexibility to add, remove, or change beneficiaries, you need a discretionary trust instead, which allows trustees to modify beneficiaries throughout the trust's lifetime.

Q: What's the difference between a bare trust and a discretionary trust for children?

A: A bare trust gives the child absolute entitlement at age 18 and any gift is a potentially exempt transfer (no inheritance tax if you survive 7 years). A discretionary trust allows trustees to control when and how assets are distributed, but gifts are chargeable lifetime transfers with potential 20% tax if over £325,000 and 10-year anniversary charges of up to 6%.

Q: Can grandparents avoid the £100 income tax rule with a bare trust?

A: Yes. The parental settlement rules only apply when a parent creates a bare trust for their own minor unmarried child. Grandparents, aunts, uncles, and other relatives can create bare trusts for children without the £100 income limit, and all income is taxed on the child using their personal allowance.

Conclusion

Bare trusts aren't right for everyone, but when they fit your situation—modest gifts, trusted beneficiaries, tax-efficient planning—they offer simplicity without the complexity of discretionary trusts. The key is understanding the trade-offs: certainty for the child versus flexibility for you.

Key takeaways:

  • Bare trusts offer simplicity and tax efficiency with PET treatment for inheritance tax, no 10-year charges, and the child's full CGT allowance, but lack flexibility since the beneficiary is fixed and gains full control at 18 in England/Wales (16 in Scotland)
  • Parents face the £100 parental settlement rule where if trust income exceeds £100 per year, all income is taxed on the parent at their rate, but grandparents and other relatives avoid this rule entirely
  • Investment-based bare trusts must be registered with HMRC's Trust Registration Service within 90 days, though cash deposit accounts at banks and building societies are specifically exempt from registration
  • Compare bare trusts versus discretionary trusts carefully—bare trusts suit small to moderate gifts with confident beneficiaries, while discretionary trusts suit large sums or situations where maturity and control are concerns
  • Use the decision framework to evaluate gift size, settlor identity, asset types, and the child's likely maturity before committing to a bare trust's irrevocable structure

Once you're clear on which structure matches your goals, you can move forward with confidence knowing you've protected your family's interests while providing for the next generation.

Need Help with Your Will?

If you want to include trust provisions for children or grandchildren in your will, understanding the differences between bare trusts and discretionary trusts is essential. The right choice depends on your assets, family circumstances, and how much control you want trustees to retain.

Create your will with confidence using WUHLD's guided platform. For just £99.99, you'll get your complete will (legally binding when properly executed and witnessed) plus three expert guides. Preview your will free before paying anything—no credit card required.

Legal Disclaimer:

This article provides general information only and does not constitute legal or financial advice. WUHLD is not a law firm and does not provide legal advice. Laws and guidance change and their application depends on your circumstances. For advice about your situation, consult a qualified solicitor or regulated professional. Unless stated otherwise, information relates to England and Wales.

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