Bare trusts—IHT
Bare trusts—IHT

The following Private Client guidance note provides comprehensive and up to date legal information covering:

  • Bare trusts—IHT
  • What is a bare trust?
  • IHT status of a bare trust
  • Is there a chargeable transfer?
  • Is a bare trust a settlement?
  • Duties of a bare trustee

This Practice Note considers the meaning of 'bare trust' and the inheritance tax (IHT) treatment of such a trust. For information on the income tax and capital gains tax (CGT) treatment of a bare trust, see Practice Note: Bare trusts—income tax and CGT.

What is a bare trust?

The term ‘bare trust’ applies to an arrangement where the legal ownership of property is in a different name from that of the person beneficially entitled to it. The person entitled to it has absolute rights to both capital and income, but the legal owner will conduct the management of it. Some of the situations in which a bare trust might arise are described below.

Assets held for minors (children)

Bare trusts increased in popularity following the changes in the IHT treatment of settlements effected by the Finance Act 2006 (see Practice Note: Finance Act 2006 changes to trust taxation).

Minors do not have the legal capacity to enter into contract or give a valid receipt. Property which, in equity, belongs to a child must be held in the name of a trustee. Whilst the child is under 18, the trustee, usually a parent or guardian, manages the property according to their own judgment, even though it belongs absolutely to the child. But if the child's rights to the property are not subject to