Bare Trusts

A Bare Trust is probably the easiest trust to set up, it effectively means that someone holds an asset as a nominee for another person.
 
The beneficiary has an absolute right to the assets and the income but the trustees are the legal owners and hold the asset as a nominee. The transfer of an asset to a bare trust is a potentially exempt transfer for IHT purposes becoming completely exempt once the seven-year period has expired, if the donor survives.
 
A bare trust can be something as simple as a bank or building society account in the settlor's name as trustee for the beneficiary and would not therefore incur any administration expenses.
 
The tax position of the trust depends on the beneficiary's circumstances, so that any income is normally included in with the beneficiary's own and this will mean that personal allowances and the basic rate bands are all available to use. Likewise when looking at any CGT position, any reliefs and exemptions are available on the disposal of chargeable assets
according to the cicumstances of the beneficiary. All income and gains must be shown on the personal tax returns of the benefciary, trustees are not required to complete tax returns. HMRC will accept returns from trustees but these should only show income and not any capital gains/losses. Any tax deducted at source will be refunded if covered by reliefs and allowances.
 
If a bare trust is created by a parent on behalf of their children under the age of 18, income is taxed as that of the parent unless covered by the £100 limit. Again capital transactions are still classed as belonging to the child, therefore capital gains and losses could occur. Bare trusts created by parents are an effective way of children acquiring a portfolio that produces capital growth rather than income. If capital gains do arise then the full annual exemption (currently £10 600),rather than the half that applies to other trusts, is available.

To arrange an initial appointment with your advisor, please do Contact Us.