Comparison · Estate Planning · 2026
Bare Trust vs Interest in Possession Trust UK 2026: Which Trust Structure to Use?
Bare trusts and interest in possession trusts both give a named beneficiary rights over trust assets, but the nature of those rights — and the resulting tax treatment — are very different. A bare trust gives absolute, immediate ownership; an interest in possession trust splits income and capital between different people. Here is the full 2026 comparison for UK estate planning.
TL;DR - 30-Second Summary
- - Bare trust: beneficiary has absolute right to income and capital; gifts treated as PETs, no periodic charges
- - Interest in possession trust: life tenant gets income, remainderman gets capital later; often taxed under the relevant property regime
- - Nil-rate band: £325,000 remains the key reference point for periodic and exit charges on most lifetime interest in possession trusts
Side by Side: Bare Trust vs Interest in Possession Trust
| Feature | Bare Trust | Interest in Possession Trust |
|---|---|---|
| Beneficiary rights | Absolute right to income and capital | Income only (life tenant); capital to remainderman |
| Gift treatment for IHT | Potentially Exempt Transfer (7-year rule) | Often relevant property regime (periodic/exit charges) |
| Settlor control after set-up | None — absolute entitlement fixed | More flexible income/capital split defined at outset |
| Income tax | Taxed as beneficiary's own income | Typically taxed on the life tenant, trust rates may apply |
| Typical use case | Gifting to children/grandchildren | Providing for a spouse while protecting capital for children |
What Is a Bare Trust?
A bare trust is the simplest form of trust: the trustee holds legal title to assets, but the named beneficiary is treated as the absolute owner for all practical and tax purposes. The beneficiary has an unconditional right to both income and capital, and can demand the assets outright once they turn 18 (in England and Wales).
Because the beneficiary is treated as the true owner, gifts into a bare trust are Potentially Exempt Transfers for Inheritance Tax purposes — falling outside the donor's estate after 7 years, just like an outright gift, with none of the periodic or exit charges that apply to discretionary trusts.
What Is an Interest in Possession Trust?
An interest in possession trust splits rights between beneficiaries: a "life tenant" has the right to income generated by the trust assets as it arises, while the underlying capital is held for a different beneficiary (the "remainderman") who receives it when the life tenant's interest ends — typically on their death.
Tax treatment depends heavily on when and how the trust was created. Most interest in possession trusts set up during someone's lifetime since March 2006 fall under the "relevant property regime," meaning they are subject to the same periodic (10-yearly) and exit charges as discretionary trusts, calculated with reference to the £325,000 nil-rate band. Certain trusts arising on death (such as immediate post-death interest trusts) are taxed differently, with the capital typically forming part of the life tenant's own estate.
Who Should Choose What?
- - You want simple, tax-efficient gifting to a child or grandchild
- - You are comfortable giving the assets outright once they turn 18
- - You want to avoid ongoing trust taxation complexity
- - You want to provide income for one person while protecting capital for another
- - You are planning for a second marriage or blended family
- - You want more control over how income and capital are split
Both structures require careful drafting to achieve the intended tax and family outcomes — always take professional trust and estate planning advice before setting either up.