Bare trusts

By Tolley
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The following Trusts and Inheritance Tax guidance note by Tolley provides comprehensive and up to date tax information covering:

  • Bare trusts
  • Income tax
  • Capital gains tax
  • Compliance
  • Bare trust situations

This guidance note explains how trustees of bare trusts are treated for income tax and capital gains purposes. Although a bare trust is, in equity, a type of trust, for both income tax and capital gains tax purposes its existence is transparent. This means that no tax liability falls on the trustees in respect of their income and chargeable gains. Rather, the two tax regimes target and tax the beneficiary of such a trust at the beneficiary's rates of tax.

Income tax

Although the income tax regime provides that bare trusts are not subject to the rules that apply to other types of trust, it does not explicitly say how to treat the income arising from property held in a bare trust. The following rules are established by case law:

  • any income arising to a bare trustee is assessable on the beneficiary as he is absolutely entitled to that income
  • the beneficiary must declare any income on his personal tax return
  • although the bare trustee may pay income tax on behalf of a beneficiary, it is the beneficiary who is chargeable to tax
  • any expenditure incurred by the bare trustee is not deductible by the beneficiary in computing his income tax liability

CIR v McIntosh 36 TC 334 (subscription sensitive); Hamilton-Russell’s Executors v CIR 25 TC 200 (subscription sensitive)

See Example 1.

Capital gains tax

In contrast to the income tax regime, the capital gains tax legislation sets out the treatment of chargeable gains arising from the disposal of property held by the trustee of a bare t