Bare Trusts for Children: How They Work and Are Taxed 2026/27
How a bare trust for a child works, income and gains tax treatment, the parental settlement rule for parents' gifts, grandparent gifting, and access at age 18.
What Is a Bare Trust?
A bare trust (sometimes called a simple trust or absolute trust) is the most straightforward trust structure available under English law. A trustee holds assets -- cash, investments, property or other assets -- in their own name, but entirely for the benefit of a specific, named beneficiary, typically a child. The trustee has no discretion over how the assets are invested for the beneficiary's benefit or when they are eventually paid out: the beneficiary has an immediate and absolute entitlement to both the capital and any income it generates.
This is different from a discretionary trust, where trustees can choose which beneficiaries receive income or capital, and when. In a bare trust, there is only one possible outcome: the assets belong to the named beneficiary, held in trust purely as a practical and legal mechanism because a minor cannot hold assets directly in their own name.
Common examples include:
- A grandparent investing a lump sum "for" a grandchild via a bare trust investment account
- A parent putting Child Trust Fund or savings account money into a bare trust arrangement
- Compensation payments or inheritances left to a minor, held on bare trust until they turn 18
Who Pays Tax: The Basic Rule
Because the beneficiary is treated as the true owner of the assets from the outset, income and capital gains generated within a bare trust are generally assessed for tax against the beneficiary, not the trustee and not (subject to the parental settlement rule below) the person who made the gift.
This means a bare trust for a child can, in principle, use the child's own tax-free allowances:
| Allowance (2026/27) | Amount |
|---|---|
| Personal Allowance | £12,570 |
| Dividend allowance | £500 |
| CGT Annual Exempt Amount | £3,000 |
Most children have no other income of their own, so in practice a bare trust can generate a meaningful amount of tax-free income and gains each year, before any liability arises -- subject to the parental settlement rule where the gift came from a parent.
The Parental Settlement Rule
This is the single most important anti-avoidance rule to understand before setting up a bare trust funded by a parent.
Under the parental settlement rules, if a parent (or step-parent) gifts assets into a bare trust for their own minor, unmarried child, and the income generated from that parent's gift exceeds £100 in a tax year, the entire income is taxed as the parent's own income for that year -- not the child's.
This rule exists specifically to stop parents shifting large amounts of investment income onto their children's lower tax rates and unused allowances. It is a narrow, specific rule:
- It applies per parent, per child -- each parent has their own separate £100 threshold to monitor in respect of their own gifts to that child
- Gifts from the same parent to the same child across multiple accounts or trusts are aggregated for that parent's £100 test
- It only applies while the child is a minor and unmarried -- once the child turns 18 (or marries earlier), the rule stops applying and income is assessed on the child in the normal way
- Capital gains are not caught by the same £100 rule in the same way income is -- the parental settlement rule is specifically an income tax rule, though the wider settlements legislation for capital can still be relevant in some arrangements and should be checked with an adviser
Why Grandparents Favour Bare Trusts
Crucially, the parental settlement rule applies only to parents (and step-parents) -- not to grandparents, aunts, uncles, godparents or family friends. A grandparent who sets up and funds a bare trust for a grandchild does not trigger the £100 rule at all: income and gains are simply taxed on the child using the child's own allowances, regardless of the amount gifted.
This makes bare trusts a well-established and popular vehicle for grandparents wanting to make substantial gifts -- for school fees planning, a future house deposit, or general wealth transfer -- without the income being clawed back onto anyone else's tax return. It is one of the few areas of UK tax planning where the identity of the donor materially changes the tax outcome for otherwise identical gifts.
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Check how a bare trust gift interacts with Inheritance TaxBare Trusts and Inheritance Tax
A gift into a bare trust is treated, for Inheritance Tax purposes, in the same way as an outright gift directly to the beneficiary -- because the beneficiary has an immediate, absolute right to the assets, there is no ongoing trust interest retained by the donor.
This means such gifts are normally potentially exempt transfers (PETs):
- If the donor survives seven years from the date of the gift, it falls completely outside their estate for IHT purposes
- If the donor dies within seven years, the gift may be brought back into the estate for IHT calculation purposes, with taper relief reducing the tax due on gifts made between three and seven years before death
- The donor's annual £3,000 IHT exemption (or £6,000 if the previous year's allowance was unused) can be applied to reduce or eliminate the PET value for smaller gifts
This is a more favourable IHT position than many other trust structures, where gifts into discretionary trusts above the nil-rate band can trigger an immediate lifetime IHT charge -- bare trusts avoid this because the beneficiary's interest is absolute from day one.
Access at Age 18
A defining feature of a bare trust is that the beneficiary becomes absolutely entitled to the trust assets at age 18 in England, Wales and Northern Ireland, or age 16 in Scotland. At that point, the trustee has no further discretion: the (now adult, or in Scotland, teenage) beneficiary can demand the assets be transferred to them outright, and can use them however they wish.
This lack of ongoing control is an important practical consideration for parents and grandparents: unlike some other trust structures that can restrict access to later ages (25, for example), a bare trust cannot delay the beneficiary's access beyond 18 (or 16 in Scotland), regardless of the settlor's wishes about financial maturity.
Bare Trust vs Junior ISA
Many families weigh up a bare trust against a Junior ISA (JISA) for the same purpose -- saving or investing for a child.
- A JISA shelters all income and gains from tax entirely, regardless of who contributed, and specifically does not trigger the parental settlement rule, but is capped at the annual JISA subscription limit and cannot be accessed until age 18
- A bare trust has no contribution limit and more flexibility over investment choice and underlying assets, but parental gifts above the £100 income threshold are taxed back on the parent
In practice, many families use both: maximising the JISA allowance each year for parent-funded savings, and using a bare trust for larger grandparent gifts or amounts that exceed the JISA limit.
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Frequently asked questions
What is a bare trust?
A bare trust is the simplest form of trust: a trustee holds assets in their name for the absolute benefit of a named beneficiary, usually a child, with no discretion over how or when the assets are used. The beneficiary is treated as legally entitled to the assets and the income they generate from the outset, even though the trustee manages them until the beneficiary comes of age.
Who pays tax on income and gains inside a bare trust?
In general, the beneficiary (the child) is treated as the owner of the assets for tax purposes, so income and capital gains are assessed against the child's own tax-free allowances -- the child's Personal Allowance, savings allowances, dividend allowance and CGT Annual Exempt Amount -- rather than the trustee's or the settlor's.
What is the parental settlement rule and why does it matter for bare trusts?
Where a parent gifts money or assets into a bare trust for their own minor, unmarried child, special anti-avoidance rules apply: if the total income generated for that child from gifts by that parent exceeds £100 in a tax year, all of that income is taxed as the parent's own income, not the child's. This rule specifically targets parents; it does not apply to gifts from grandparents or other relatives.
Does the £100 rule apply per parent or per child?
It applies per parent, per child. If both parents each gift assets to the same child, each parent has their own separate £100 threshold to monitor for income arising from their own gifts. Gifts from the two parents are not aggregated together for this test, though each parent's own gifts to the same child in different bare trusts would be aggregated for that parent's £100 limit.
Why do grandparents often use bare trusts instead of parents?
Because the parental settlement rule only applies to gifts from parents (and step-parents) to their own minor children, gifts from grandparents, aunts, uncles or family friends into a bare trust for a child are not subject to the £100 rule. Income and gains on grandparent-funded bare trusts are simply taxed on the child using the child's own allowances, which is usually far more tax-efficient for larger gifts.
What tax-free allowances does a child have for a bare trust in 2026/27?
A child has their own Personal Allowance of £12,570, starting rate for savings and Personal Savings Allowance where applicable, dividend allowance of £500, and Capital Gains Tax Annual Exempt Amount of £3,000, in the same way as an adult. Most children have little or no other income, so in practice a bare trust can often generate meaningful tax-free income and gains for the child each year, subject to the parental settlement rule where relevant.
When can the child access assets in a bare trust?
The child becomes absolutely entitled to the assets in a bare trust at age 18 in England, Wales and Northern Ireland (age 16 in Scotland), at which point they can demand that the trustee transfer the assets to them outright. The trustee has no discretion to withhold assets beyond this age, which distinguishes a bare trust from a discretionary trust.
Is a gift into a bare trust subject to Inheritance Tax?
A gift into a bare trust is normally treated as a potentially exempt transfer (PET) for Inheritance Tax purposes, in the same way as an outright gift to an individual, because the beneficiary has an immediate and absolute right to the assets. If the person making the gift survives seven years, it falls outside their estate for IHT entirely; if they die within seven years, it may be brought back into the estate, with taper relief reducing the tax on gifts made three to seven years before death.
Do bare trusts need to be registered with HMRC's Trust Registration Service?
Most bare trusts do need to be registered on the Trust Registration Service (TRS), following rules extended in 2022 to cover most UK express trusts, including many bare trusts, subject to specific exclusions. The registration rules are detailed and exclusions can apply depending on the type of asset and how the trust arose, so this should be checked against current HMRC guidance for the specific trust in question.
What is the difference between a bare trust and a Junior ISA for tax purposes?
A Junior ISA shelters income and gains from tax entirely, regardless of who funded it, including parents, without triggering the parental settlement rule, but is capped at the annual JISA subscription limit and cannot be accessed by the child until age 18. A bare trust has no contribution limit and offers more flexibility over investment choice, but income from parental gifts above £100 a year is taxed on the parent, making JISAs generally more efficient for parent-funded savings within the JISA limit, while bare trusts are often preferred for larger grandparent gifts or amounts exceeding the JISA allowance.
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