A bare trust is the simplest way to hold money or investments for a child, and it comes with genuinely useful tax advantages -- but a well-known anti-avoidance rule means the source of the gift matters enormously. Money from a grandparent is taxed very differently to money from a parent. This guide explains how a bare trust works, whose tax return the income lands on, the parental settlor £100 rule, how capital gains are treated, when the child takes full control, and a worked example comparing a bare trust funded by a grandparent to a Junior ISA.
What a Bare Trust Is
A bare trust (or simple/absolute trust) is the simplest trust structure: assets are held by a trustee -- often a parent or grandparent -- for a named beneficiary, who has an absolute, unconditional right to both capital and income once they reach 18 (16 in Scotland). The trustee has no discretion over who benefits or when.
Bare trusts are used both informally (a savings account opened "for" a grandchild) and formally, with a written trust deed for larger sums.
Whose Tax Return the Income Goes On
As a general rule, income and gains from a bare trust belong to the beneficiary (the child)for tax purposes, not the trustee -- so the child's own personal allowance, savings allowance and dividend allowance apply. This is one of the main attractions of a bare trust for grandparents or other non-parent settlors.
This general rule is overridden, however, when the settlor is a parent of the child, as the next section explains.
The £100 Parental Settlor Rule
If a parent gives money or assets into a bare trust for their own minor, unmarried child, and the income generated exceeds £100 gross in a tax year, the entire income -- not just the excess -- is taxed as the parent's income, for as long as the child remains a minor and unmarried.
This anti-avoidance rule applies per parent, per child. Grandparents and other relatives are not affected-- their gifts are taxed as the child's income from the first pound, which is why grandparent-funded bare trusts are so widely used.
Capital Gains Tax Treatment
Bare trust assets are treated as belonging to the beneficiary for CGT purposes. Gains use the child's own annual exempt amount (£3,000for 2026/27) and are taxed at the child's own CGT rates where they exceed it.
Crucially, unlike the £100 income rule, there is no parental attribution rule for capital gains-- gains on a parent-funded bare trust are still taxed as the child's, regardless of amount, making bare trusts comparatively CGT-efficient for growth assets even when set up by a parent.
Control at 18
The beneficiary gains an absolute, unconditional right to demand the trust assets at 18 (England, Wales, Northern Ireland) or 16 (Scotland). The trustee cannot delay, restrict or attach conditions once that age is reached.
Families wanting more control over when and how a young adult accesses substantial funds may prefer a discretionary trust instead, accepting its more complex tax treatment in exchange for flexibility.
Worked Example: Grandparent Gift in 2026/27
A grandparent invests £15,000 into a bare trust for their grandchild, generating £600 of dividend income and, later, a £4,000 capital gain on sale.
Item
Tax position
£600 dividend income
Taxed as child's own income -- £100 rule does not apply (grandparent, not parent)
£4,000 capital gain
£3,000 covered by child's annual exempt amount; £1,000 taxable at child's rate
With no other income or gains, the child's personal allowance and dividend allowance likely cover the £600, and the £1,000 excess gain results in little or no actual tax -- illustrating why bare trusts are so popular for grandparent gifts. Use the capital gains tax calculator to check a specific scenario.
Frequently Asked Questions
What is a bare trust?
A bare trust (also called a simple or absolute trust) is the simplest form of trust: assets are held by a trustee (often a parent or grandparent) on behalf of a named beneficiary (typically a child), but the beneficiary has an absolute, unconditional right to both the capital and the income once they reach 18 (16 in Scotland). Unlike discretionary trusts, the trustee has no discretion over who benefits or when -- the beneficiary's entitlement is fixed from the outset. Bare trusts are commonly used informally, for example a savings account or investment opened by a grandparent "for" a grandchild, as well as formally, with a written trust deed for larger sums.
Whose tax return does bare trust income go on?
As a general rule, income and gains from a bare trust belong to the beneficiary (the child) for tax purposes, not the trustee, because the child has the absolute underlying entitlement to the assets. This means the child's own personal allowance, savings allowance and dividend allowance can be set against that income, which is one of the main tax attractions of a bare trust for grandparents or other non-parent settlors. However, this general rule is overridden when the settlor is a parent of the child -- see the £100 rule below, which can attribute the income back to the parent instead.
What is the parental settlor £100 rule?
If a parent gives money or assets into a bare trust for their own minor, unmarried child, and the income generated from that gift exceeds £100 gross in a tax year, the entire income (not just the amount over £100) is taxed as the parent's income, not the child's, for as long as the child remains a minor and unmarried. This anti-avoidance rule exists to stop parents shifting income to a child to exploit the child's personal allowance. The £100 limit applies per parent, per child, and is tested separately for each parent if both contribute. Grandparents, other relatives and friends are not affected by this rule -- their gifts into a bare trust for a child are taxed as the child's income from the first pound, regardless of amount.
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How is capital gains tax treated on bare trust assets?
For capital gains tax, assets held in a bare trust are treated as belonging to the beneficiary from the outset (rather than being treated as a separate taxable entity, as happens with discretionary trusts). This means gains realised within the bare trust use the child's own annual CGT exempt amount (£3,000 for 2026/27) and are taxed, where they exceed it, at the child's own CGT rates. Crucially, unlike the £100 income rule, there is no parental attribution rule for capital gains -- gains on a bare trust funded by a parent are taxed as the child's gains regardless of the amount, making bare trusts a comparatively CGT-efficient way to hold growth assets for a child, even when set up by a parent.
When does the child gain control of a bare trust?
The beneficiary gains an absolute, unconditional right to demand the trust assets at age 18 in England, Wales and Northern Ireland, or age 16 in Scotland. Unlike a discretionary trust, the trustee cannot delay, restrict or attach conditions to this entitlement once the beneficiary reaches that age -- the whole point of a bare trust is that the beneficiary's interest is fixed and unconditional from the start. This is an important consideration: parents or grandparents who want more control over when and how a young adult accesses substantial funds may prefer a discretionary trust instead, accepting its more complex tax treatment in exchange for flexibility.
Does a bare trust need to be registered with HMRC?
Most bare trusts are exempt from the Trust Registration Service where the trust simply holds assets absolutely for a minor and there is no more complex arrangement involved -- but there are important exceptions, including bare trusts holding UK land or property, and certain bare trusts that generate a UK tax liability requiring the trustee (rather than the beneficiary directly) to report and pay it. Because the registration rules are detailed and have been extended over recent years, it is sensible to check the current HMRC guidance on trust registration exemptions for the specific type of assets and arrangement involved before assuming no registration is needed.
How does a bare trust compare to a Junior ISA?
A Junior ISA is entirely free of UK income tax and capital gains tax on growth within the account, with no parental £100 rule to worry about, but it is capped at £9,000 of new contributions per tax year for 2026/27 and the funds are locked until the child turns 18, at which point they convert to an adult ISA still in the child's name. A bare trust has no contribution limit and more flexible investment choice, and gains are usually tax-efficient too (subject to the child's own CGT allowance), but income above £100 from a parental gift is taxed as the parent's, and once the trust is set up it is generally irrevocable, so the money cannot be redirected. Many families use both: the Junior ISA for the first tranche of savings, and a bare trust for larger gifts, especially from grandparents.
Can a bare trust be used for inheritance tax planning?
Yes, within limits. A gift into a bare trust is generally treated as a Potentially Exempt Transfer (PET) for inheritance tax purposes if made by an individual to another individual's absolute benefit -- because a bare trust beneficiary has an immediate absolute interest, the gift falls out of the donor's estate after seven years, just like an outright gift would. This makes bare trusts a straightforward and IHT-efficient way for grandparents in particular to pass wealth down a generation while retaining some administrative control as trustee until the child reaches 18, without triggering the more complex periodic and exit charges that apply to discretionary trusts.
What happens to unused income within a bare trust?
Because the beneficiary has an absolute right to bare trust income as it arises, income that is not paid out to the child but instead accumulated and reinvested within the trust is still treated as belonging to, and taxable on, the beneficiary in the year it arises -- it does not escape tax simply by being reinvested rather than distributed. This differs from some other trust structures where accumulation can change the tax character of income. In practice, trustees often do reinvest bare trust income to grow the fund for the child, but the tax return (whether on the parent under the £100 rule, or the child if a return is needed) must still reflect that income as it is generated, not just when it is eventually paid out.
Worked example: grandparent gift into a bare trust in 2026/27?
A grandparent invests £15,000 into a bare trust investment account for their grandchild. The investments generate £600 of dividend income and, over several years, a £4,000 capital gain when eventually sold. Because the settlor is a grandparent, not a parent, the £100 rule does not apply -- the £600 dividend income is taxed as the child's own income, almost certainly covered by the child's personal allowance (£12,570) and dividend allowance if the child has no other income. The £4,000 capital gain is tested against the child's own annual CGT exempt amount (£3,000 for 2026/27), leaving £1,000 potentially taxable at the child's CGT rate -- but again, if this is the child's only gain in the year, it is likely to result in little or no actual tax, illustrating why bare trusts are popular for grandparent gifts specifically.
Disclaimer: This guide reflects UK bare trust tax rules for 2026/27. Allowances, thresholds and registration requirements can change. This guide is for general information only and is not professional tax or legal advice. Consult a qualified adviser and refer to gov.uk for current official guidance before setting up a trust for a child.
