Glossary · UK
What is Bare Trust?
A simple trust where the beneficiary has an absolute right to the capital and income, often used to hold assets for a child.
Full Definition
A bare trust (also called a simple or absolute trust) is the most basic form of trust. The trustee holds the legal title to assets but the named beneficiary has an immediate, absolute and irrevocable right to both the capital and any income. Bare trusts are commonly used by parents and grandparents to hold savings or investments for a child until they reach 18 (16 in Scotland), at which point the beneficiary can demand the assets outright. For tax purposes the assets are treated as belonging to the beneficiary, so income and gains are taxed at the beneficiary rates and use the beneficiary allowances, including the 12,570 Personal Allowance and the 3,000 Capital Gains Tax annual exempt amount. An important exception applies to parents: where a parent gifts assets into a bare trust for their own minor child and the income exceeds 100 per parent per year, all of that income is taxed on the parent instead. Gifts into a bare trust are potentially exempt transfers for Inheritance Tax, falling outside the estate if the donor survives seven years. Bare trusts are simple and cheap to run but offer no flexibility, since the beneficiary and their entitlement are fixed.