Bare Trust UK: What It Is, How It Works, and When to Use One

A bare trust is one of the simplest forms of trust available in English law — but that simplicity conceals some powerful uses. If you're thinking about setting aside money or assets for a child or grandchild, gifting shares to a minor, or holding assets in someone else's name, a bare trust may be exactly what you need.

This guide explains what a bare trust is, how it works, how it compares to a family discretionary trust, and when it makes — and doesn't make — sense for your situation.

What is a bare trust?

A bare trust is a legal arrangement in which a trustee holds assets for the absolute and unconditional benefit of a named beneficiary. The beneficiary has a fixed, immediate right to the assets and any income they produce. The trustee has no discretion whatsoever — they cannot decide who benefits, how much they receive, or when.

In plain terms: the trustee is a caretaker, not a decision-maker. They hold the assets until the beneficiary is ready to receive them — typically when they turn 18 — and then they hand them over.

This is the defining feature of a bare trust: absolute entitlement. The beneficiary is identified from the moment the trust is created, and their right to the assets cannot be changed or revoked by the trustee.

How a bare trust works

Here's the mechanics in practice:

1. The settlor transfers assets into the trust — money, shares, property, or other assets. The transfer is a gift: once made, the settlor loses ownership.

2. The trustee holds the assets in their name, on behalf of the beneficiary. They have no active duties beyond safeguarding the assets and acting in the beneficiary's interest. They do not manage the trust for a class of potential beneficiaries — they simply hold for one specific person.

3. The beneficiary has absolute entitlement from day one. They receive any income the assets produce. Once they reach 18 (or 16 in Scotland) and are mentally capable, they can demand the assets are transferred to them immediately.

The trustee's role is passive. They're not making investment decisions on behalf of a trust fund or exercising discretion over distributions. They're holding — nothing more.

This is what distinguishes a bare trust from almost every other form of trust: the beneficiary's interest is fixed, certain, and unalterable by the trustee.

Bare trust vs discretionary trust

This is the comparison most families need to understand before deciding which structure suits them.

| | Bare Trust | Discretionary Trust |

|---|---|---|

| Beneficiary | Fixed and named from outset | A class of potential beneficiaries |

| Entitlement | Absolute — beneficiary has unconditional right | At trustees' discretion — no guaranteed entitlement |

| Trustee control | None — trustee is a passive holder | Full — trustees decide who gets what and when |

| Flexibility | Very limited — cannot change beneficiary | High — trustees can respond to changed circumstances |

| Tax (income/CGT) | Taxed as beneficiary's | Taxed within trust (discretionary trust rates) |

| IHT treatment | PET if settled by an individual | Relevant property regime — periodic and exit charges may apply |

| Beneficiary at 18 | Gains absolute right to demand assets | Trustees retain control — no automatic entitlement |

| Best for | Simple gifting to one named person | Protecting wealth across a class of family members |

The key trade-off is control vs simplicity. A bare trust is administratively straightforward and tax-efficient for the beneficiary — but once you've set it up, you cannot change your mind about who benefits. A discretionary trust guide explains how the more flexible structure works and when it's the right choice.

For families with multiple children, complex circumstances, or a desire to retain control over when and how assets are distributed, a discretionary trust is usually the better tool. For a single beneficiary and a specific gift — particularly to a child or grandchild — a bare trust often does the job cleanly and simply.

When to use a bare trust

Gifting to children or grandchildren

This is the most common use. A grandparent wants to set aside £20,000 for each grandchild. They transfer the money into separate bare trusts, appointing a parent as trustee. The money grows — perhaps invested in stocks and shares — until each grandchild turns 18 and takes control. Simple, clean, tax-efficient.

Holding shares for a minor

Companies House does not permit minors to be registered shareholders. If you want to give shares to a child — in a family business or otherwise — a bare trust allows an adult trustee to hold those shares on the child's behalf until they come of age.

JISA and ISA-wrapper structures

Junior ISAs and certain investment accounts set up for minors operate on bare trust principles. The parent or guardian manages the account; the child owns the assets beneficially and gains full control at 18.

Simple asset holding as nominee

Where one person holds an asset on behalf of another — a nominee arrangement — that is technically a bare trust. The legal owner holds on behalf of the beneficial owner, who has absolute entitlement. A Nominee Declaration documents this clearly, which matters when the beneficial owner needs to assert their interest.

Bare trusts are not right for every situation. If you want flexibility over who benefits, the ability to change beneficiaries, or ongoing trustee control beyond age 18, a family discretionary trust is a more appropriate structure. We cover when not to use a bare trust in more detail below.

Tax treatment of bare trusts

Understanding the tax position is essential before setting up any trust.

Income tax

Income arising within a bare trust — interest, dividends, rent — is treated as the beneficiary's income for tax purposes, not the trustee's. This means it's taxed at the beneficiary's marginal rate. For a child who has no other income, this is typically their personal allowance (currently £12,570), meaning most income in a modest bare trust falls below the threshold.

Important exception — the parental settlement rules: If the settlor is a parent of the minor beneficiary, income exceeding £100 per year is taxed as the parent's income until the child turns 18 or marries. This rule exists to prevent parents artificially shifting income to their children to exploit lower tax rates. Grandparents and other family members are not caught by this rule — making grandparent-to-grandchild bare trusts particularly tax-efficient.

Capital Gains Tax

Gains on bare trust assets are taxed as the beneficiary's gains, using the beneficiary's annual exempt amount. For most children, this means gains fall within their annual CGT allowance (currently £3,000 after recent reductions), and any excess is taxed at the child's own rate — typically 0% if they have no other income.

Inheritance Tax

When an individual settles assets into a bare trust, the transfer is treated as a Potentially Exempt Transfer (PET). This means no IHT is immediately due. If the settlor survives seven years from the date of the gift, the transfer falls completely outside their estate. If they die within seven years, tapered relief may apply depending on how much time has passed.

This is significantly more favourable than the treatment for discretionary trusts, which fall under the relevant property regime — with a 20% entry charge on amounts above the nil-rate band, 10-yearly periodic charges, and exit charges. For simple gifting arrangements, the PET treatment of bare trusts is a meaningful advantage.

For a full picture of how these structures interact with your estate planning, our guide to inheritance tax covers the key planning tools available to UK families.

HMRC and bare trusts

Trust Registration Service

Not all bare trusts are required to register with HMRC's Trust Registration Service. The position is nuanced:

• Bare trusts holding UK land or property must register.
• Bare trusts set up on or after 6 April 2021 that are not liable to UK tax may still need to register under expanded 5th Anti-Money Laundering Directive requirements — even if they have no tax to report.
• Some nominee arrangements may be exempt.
• Bare trusts that are liable to UK tax — income tax, CGT, or IHT — must register if they haven't done so already.

The rules changed significantly in 2022–2023, and HMRC's current guidance on the Trust Registration Service should be consulted for your specific arrangement. The obligations depend on the nature of the assets, when the trust was created, and whether any tax has arisen.

Self-assessment

If the bare trust generates taxable income or gains above the beneficiary's allowances, a self-assessment tax return may be required — filed in the beneficiary's name, not the trustee's. For minor children, the parent or guardian typically manages this.

When NOT to use a bare trust

When you want to retain control

A bare trust removes your ability to decide when and how the beneficiary receives the assets. If the beneficiary turns 18 and demands the money — perhaps to spend it on something you wouldn't choose — you cannot stop them. If retaining that control matters to you, a discretionary trust is the right tool.

When the beneficiary is vulnerable or unreliable

The same principle applies if you're concerned about a beneficiary's financial judgement, vulnerability, or circumstances. Handing over a significant sum to an 18-year-old with no conditions is a feature of a bare trust — but it may not be the outcome you want. Discretionary trusts allow trustees to manage distributions over a lifetime if needed.

When circumstances may change

You cannot add or change beneficiaries in a bare trust. If you want flexibility to include future children, grandchildren not yet born, or to respond to changing family circumstances, a discretionary trust with a defined class of beneficiaries is far more appropriate.

When assets are complex or high-value

For significant assets — property, business interests, large investment portfolios — the administrative simplicity of a bare trust can become a liability. The lack of trustee discretion, combined with the absolute entitlement of the beneficiary, may not sit well with more complex planning strategies. Professional advice is essential in these cases.

When considering a letter of wishes

Bare trusts don't work well with a letter of wishes, which is designed to guide trustee discretion in a discretionary trust. In a bare trust, there is no trustee discretion to guide — the beneficiary's entitlement is fixed. If you want to leave guidance alongside your trust, a discretionary structure is needed.

Bare trust for children: a practical example

Here's how a grandparent-to-grandchild bare trust typically works in practice.

The situation: Sandra has three grandchildren aged 4, 7, and 11. She wants to set aside £15,000 for each of them — money she wants them to have when they're adults, not accessible to their parents.

The structure: Sandra creates three separate bare trusts, each naming one grandchild as beneficiary. She appoints her daughter (the children's mother) as trustee for each trust. She transfers £15,000 into each trust.

During childhood: The trustee holds the funds, likely investing them in a stocks and shares Junior ISA or other savings vehicle. Any income and gains are taxed as the grandchild's — well within their personal allowances given no other income. Because Sandra is not the children's parent, the parental settlement rules don't apply.

The IHT position: Each £15,000 transfer is a Potentially Exempt Transfer. If Sandra survives seven years, all three gifts fall entirely outside her estate. Given she made them early, this is a straightforward piece of IHT planning.

At 18: Each grandchild gains an absolute right to their £15,000 (plus growth). The trustee must transfer the assets at the grandchild's request. There is no mechanism for the trustee to delay or withhold — the entitlement is absolute.

This is a clean, effective, and tax-efficient way to provide for the next generation. It works best when the sum involved is modest to moderate, and when you're comfortable with the beneficiary having unconditional access at 18.

Getting your documents in order

Whether you're setting up a bare trust, a family discretionary trust, or thinking about how your assets will be held and transferred across generations, having the right legal documents in place is the foundation everything else rests on.

Heirs & Order™ is a specialist document preparation service built for UK families who want professional-grade documents without the five-figure solicitor bills.

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• Family Discretionary Trust Deed — a full trust structure giving trustees the flexibility to manage and distribute assets across a class of family beneficiaries
• Letter of Wishes — your instructions to trustees, tailored to your family circumstances
• Nominee Declaration — documenting beneficial ownership where assets are held in another's name

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This guide is for informational purposes only and does not constitute legal advice. Heirs & Order™ is not a law firm. We recommend all documents are reviewed by a qualified solicitor before use.