Bare Trust Relief

27th March 2007 

To prove that the Revenue is not entirely made up of latter day "Scrooges", there has now been clarification from the Revenue with regard to the tax treatment of what is known as 'Bare Trusts'.

A Bare Trust is a very simple operation under which a trustee holds money or other assets for the absolute benefit of a named beneficiary and the beneficiary rather than the Trust is taxed on any income earned.

This has proved a very useful device for making gifts to children who are otherwise unable to hold money in their own right until the age of 18 (16 in Scotland) whilst allowing the donor to divest themselves of capital which may otherwise have remained liable to Inheritance Tax if it remained in their own hands.

An anomaly raised by last year's revision to Trust rules was that gifts into Bare Trusts for minors (under 18's) were no longer to be treated as Potentially Exempt Transfers (PET's) which become tax free after 7 years, but instead they were to be treated as chargeable transfers which meant that there was a potential 20% lifetime Inheritance Tax charge if the gift into the Bare Trust exceeded the nil rate band.

Interestingly, the Revenue still treated gifts into Bare Trusts for adults as a PET. The clarification of the rules by the Revenue this week means that all gifts into Bare Trust will be treated as a PET and a useful tool for making tax-efficient gifts (particularly to children) has been saved.

We are expert Trust Solicitors in Bournemouth with solutions to all your Trust Problems. Simply contact us today on 01202 802 807.