Answers · UK 2025/26

What is a bare trust and how is it used to save for children?

A bare trust holds assets on behalf of a child (or other beneficiary) who has an absolute, unconditional right to both the capital and income once they turn 18 (16 in Scotland). It is a simple way for parents or grandparents to save or invest for a child, though income and gains are generally taxed on the child (subject to a parental settlement anti-avoidance rule for parents specifically).

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Bare trusts are one of the simplest trust structures available, often used informally (sometimes without people even realising they have created one) when parents or grandparents put money or investments aside for a child. **How a bare trust works** Assets are held by a trustee (commonly a parent or grandparent) for the benefit of a named beneficiary, but unlike more complex trusts, the beneficiary has an absolute, unconditional right to the capital and income once they reach the relevant age (18 in England, Wales and Northern Ireland; 16 in Scotland) -- the trustee cannot change their mind, redirect the assets to someone else, or impose further conditions once the trust is established, which is a key distinction from discretionary trusts. **Common examples in practice** A Junior ISA and many "designated" investment accounts opened by parents "for" a child, held in the child's name but managed by the parent until adulthood, function similarly to bare trusts in principle -- more formal bare trusts are also commonly used for grandparents wanting to gift a lump sum for a grandchild's future without going through the complexity of a discretionary trust. **Tax treatment: generally taxed on the beneficiary (the child)** Because the child has an absolute entitlement, income and gains within a bare trust are generally treated as belonging to the child for tax purposes, meaning they can use their own Personal Allowance, savings allowances, and Capital Gains Tax annual exemption against trust income and gains -- since most children have little or no other income, this can mean little or no tax is actually payable in practice. **The parental settlement anti-avoidance rule** An important exception applies specifically where a PARENT (not a grandparent or other relative) gifts money into a bare trust for their OWN minor, unmarried child -- if the income generated exceeds £100 per parent per tax year, ALL the income (not just the amount above £100) is taxed as the PARENT's income instead of the child's. This rule specifically targets parents attempting to shift income to a child's lower tax rate; it does not apply to gifts from grandparents, other relatives, or unrelated people, which is why grandparent-funded bare trusts are a more tax-efficient route for many families than parent-funded ones. **Access at the trigger age is absolute** A significant practical consideration is that the beneficiary gains full, unconditional access to the trust assets at 18 (or 16 in Scotland) -- unlike a discretionary trust, where trustees retain control over distributions, a bare trust cannot be structured to delay access to a later age or impose conditions, which is an important limitation for families who might prefer more control over when a young adult receives a potentially large sum. **Bare trusts vs Junior ISAs** Junior ISAs offer similar bare-trust-like beneficial ownership for the child, but with the added benefit of tax-free growth and income within the ISA wrapper (avoiding the need to rely on the child's own personal allowances), and an annual contribution limit (£9,000 for 2026/27) -- for many families, a Junior ISA is a simpler and equally tax-efficient alternative to setting up a formal bare trust, particularly for grandparent gifts within the annual JISA limit. **Worked example** Grandparents set up a bare trust investment account for their grandchild, contributing £20,000. The investment generates modest dividend and capital gains over several years. Because the parental settlement rule does not apply to grandparent gifts, income and gains are assessed using the CHILD's own tax-free allowances, meaning in most cases no tax is due, since the child has no other significant income using up those allowances. **Practical tip** For grandparents or other relatives wanting to gift more than the Junior ISA annual limit, a bare trust can be a useful additional option, but be clear with the family that the child will gain full, unconditional legal control of the assets at 18 (or 16 in Scotland) -- discuss expectations about how the money should be used well before that date arrives.