In the UK, a bare trust is a straightforward form of trust in which the trustee holds legal ownership of assets for the sole benefit of the beneficiary, who has an absolute right to the trust’s assets and income. It is commonly used for tax planning, estate planning, or holding assets for children. You can open a bank specialist bank account for a bare trust here.
Key Characteristics of a Bare Trust in the UK:
- Absolute Beneficiary Rights:
- The beneficiary (or beneficiaries) is entitled to the assets and any income generated by the trust.
- The trustee has no discretion over the use or distribution of the assets.
- The trustee must act in accordance with the beneficiary’s instructions, provided the beneficiary is of legal age (18 in England and Wales; 16 in Scotland).
- Taxation:
- Income Tax: Any income generated by the trust is taxed as though it belongs to the beneficiary. If the beneficiary is a minor, the tax rules may differ (e.g., parental tax rules if the settlor is the parent).
- Capital Gains Tax (CGT): Beneficiaries are liable for any CGT on gains made by the trust assets.
- Inheritance Tax (IHT): Assets in a bare trust are treated as part of the beneficiary’s estate for IHT purposes.
- Legal Ownership:
- The trustee is the legal owner of the trust property but holds it “on behalf of” the beneficiary.
- The beneficiary has “equitable ownership,” meaning they have the right to benefit from the trust assets.
- Common Uses:
- For Minors: Parents or guardians often use bare trusts to hold investments or savings for children until they reach adulthood.
- Nominee Shareholdings: Bare trusts can be used in investment or property transactions to hold shares or property temporarily.
- Gifts: They are useful for passing assets directly to beneficiaries while keeping the arrangement simple.
- Structure:
- There is typically no written trust deed required for a bare trust (though having one is often advisable).
- The creation of a bare trust can be explicit (e.g., via a deed) or implied (e.g., by transferring assets to a nominee for the benefit of another person).
Example:
A grandparent might set up a bare trust to hold £10,000 in investments for a grandchild. The trustee (e.g., the grandparent) manages the assets until the grandchild reaches 18 (16 in Scotland). At that point, the grandchild gains full access to the assets and any income they have generated.
Bare trusts are particularly common because of their simplicity and clarity, but they may not provide the same level of protection or flexibility as other types of trusts, such as discretionary trusts.
If you would like to open a trustee bank account for a Bare Trust on the Monika platform, simply contact us and we will be happy to assist.
