Bare trusts and leaving money to grandchildren

What is a bare trust?

A bare trust is an arrangement in which a trustee holds money or investments in their own name for a named beneficiary, who is entitled to all of the capital and income, so the trustee looks after the assets rather than deciding who receives them. GOV.UK's guide to the types of trust says the beneficiary can take the assets at 18 or over in England and Wales, or at 16 or over in Scotland, and presents bare trusts as a common way of passing assets to a young person, whose trustees manage the assets until they come of age.

The trustee can be you or someone you choose. HMRC's manual describes a bare trust as one in which the beneficiary has an immediate and absolute title to both capital and income, which means the gift is complete as soon as it is made and the money belongs to the child from that point, even though they cannot take it until they come of age. MoneyHelper gives the age as 18 in Northern Ireland as well, whilst a trust governed by Scots law is best arranged with Scottish advice.

How is a bare trust taxed?

For Income Tax and Capital Gains Tax a bare trust is largely transparent, because the income and gains are treated as the child's own. HMRC's Trusts, Settlements and Estates Manual says the beneficiary of a bare trust is taxable on the trust income and gains, and GOV.UK adds that the £500 tax-free amount used by most trusts does not apply, although the beneficiary may be able to use their own Personal Allowance. That means a grandchild with no other income can usually set the trust's income against their own allowances, and the trust does not pay the trust rates of tax that our guide to discretionary trusts sets out.

The exception is money that comes from a parent. Under section 629 of the Income Tax (Trading and Other Income) Act 2005, income from a settlement a parent makes for their own child (including a stepchild) who is under 18 and not married or in a civil partnership is taxed as the parent's, unless it comes to no more than £100 in the tax year, and GOV.UK's page on savings for children explains that the parent then pays tax on all of the interest if it is above their own Personal Savings Allowance. The same page says the £100 limit does not apply to money given by grandparents, relatives or friends, so a bare trust you fund yourself is not caught by it, although HMRC looks at where the value really came from, and its manual includes an example in which shares a grandmother gave her grandchildren were treated as settled by their father.

Capital Gains Tax can arise for you at the outset, because GOV.UK counts giving an asset away as a disposal, so putting shares that have grown in value into a bare trust can create a gain on your side. At the other end, GOV.UK says there is no tax to pay in a bare trust when the assets are transferred to the beneficiary.

Does a gift into a bare trust count for Inheritance Tax?

A gift into a bare trust is treated for Inheritance Tax much like a gift made directly to the grandchild, which means it is a potentially exempt transfer rather than the immediately chargeable kind of transfer that most other lifetime trusts involve. GOV.UK's page on trusts and Inheritance Tax says transfers into a bare trust may be exempt as long as the person making the transfer survives for 7 years, and our guide to the 7-year rule explains how a gift is treated if you die sooner.

Some gifts never need the 7 years at all, because they fall within an exemption. The £3,000 annual exemption, the £250 small gifts allowance, the £2,500 allowance for a grandchild's wedding or civil partnership and regular gifts out of surplus income can all apply to money you give grandchildren, and our guide to reducing Inheritance Tax legally explains how each one works and the records that help your executors prove them. Regular payments from income into a grandchild's savings can fall within the last of these, provided they genuinely come from income and leave you able to keep your usual standard of living.

Care charging works differently. The Care and Support Statutory Guidance for England gives the example of a woman who set aside £3,000 of her own building society balance for her granddaughter's education, with no deed of trust, and was treated as owning the whole balance, so money that is only earmarked is still your capital, whilst a completed gift can be questioned if it was made to avoid care charges, which our guide to deprivation of assets and care home fees explains.

Does a bare trust need to be registered with HMRC?

Often it does, even when there is no tax to pay. HMRC's Trust Registration Service manual says there is no specific exclusion from registration for bare trusts and that, in general, a bare trust which is an express trust (one deliberately set up) should register, although several exclusions may apply to common bare trust arrangements. Where none applies, a trust with no tax to pay has to be registered within 90 days of being created.

The two exclusions most relevant to grandparents are narrow. The first covers trusts created as a requirement of opening a bank account for someone under 18, which HMRC limits to cash deposit accounts with organisations authorised to take deposits, generally banks, building societies and credit unions, so it does not reach stocks and shares or other investments held for a child. The second is a general exclusion for small trusts that are not liable for a relevant UK tax, which applies only where the trust holds no UK land, has no more than £2,000 in non-financial assets such as jewellery, has received property with a cumulative value of no more than £10,000 since it was created (counting income added to capital) and has gross income of no more than £5,000 a year. A settlor can have only one trust excluded this way, and HMRC's example of a grandmother wanting a separate trust for each grandchild says only the first would be excluded, whereas a single trust for all of them could be. HMRC updated these pages on 7 August 2026, so they are worth checking before you rely on either exclusion.

What are the other ways to give money to grandchildren?

For smaller or regular amounts, products held in a child's own name can be simpler than a bare trust, although each has its own rules about who opens it and when the child gets access.

A Junior ISA

Only a parent or guardian with parental responsibility can open a Junior ISA for a child under 16 (children of 16 and 17 can open their own), but GOV.UK's guidance on paying into a Junior ISA says anyone can pay money in, so a grandparent can contribute once the parents have opened one. The total paid in cannot go over £9,000 in the 2026/27 tax year across all of the child's Junior ISAs, so your payments share the limit with anything the parents and other relatives put in. GOV.UK describes Junior ISAs as long-term, tax-free savings accounts, which the child can take control of at 16 but cannot withdraw from until 18.

Premium Bonds

NS&I lets anyone aged 16 or over buy Premium Bonds for a child under 16, including someone else's child, although the parent or guardian named on the application looks after the bonds until the child is 16, whoever paid for them. The minimum purchase is £25, a child can hold no more than £50,000 in total, and NS&I says all prizes are tax-free.

A children's savings account

MoneyHelper notes that a savings account can be started with as little as £1 for any child up to 18, and interest earned on money you give is the child's for tax purposes, because the £100 rule only catches money given by a parent. HMRC's example of the bank account exclusion is a parent opening a building society savings account for a baby, which it says need not be registered even though it technically creates a bare trust.

A pension

MoneyHelper's guide to saving for your children says any parent or legal guardian can set up a pension for a child, and HMRC's pension rules allow contributions to be paid by someone else on the member's behalf. Where the child has no earnings, tax relief is available on up to £2,880 a year paid in, which the government tops up to £3,600, but the money stays locked away until minimum pension age, which MoneyHelper puts at around 57.

How does leaving money to grandchildren in a will work?

Money you leave in your will to a grandchild under 18 is held by trustees until they are old enough, and the wording of your will decides which kind of trust that is. An outright gift to a named grandchild works as a bare trust, so the grandchild becomes entitled at 18, whereas a will can set a later age or give the trustees discretion, which changes the tax treatment. Our guide to wills with trusts explains the options.

The choice also matters if you leave your home, or a share of it, to grandchildren, because the residence nil rate band (£175,000 in 2026/27) depends on them inheriting when you die. GOV.UK's residence nil rate band guidance gives the example of a will that makes grandchildren reach a certain age before they can inherit the home, and says the band does not apply, because the home is held in trust rather than passing to the grandchildren on the death.

What is the main drawback of a bare trust?

The drawback is the same feature that makes a bare trust simple, which is that the money is the grandchild's outright and cannot be taken back or held beyond the age of entitlement. Once a gift is in a bare trust you cannot move it to another grandchild or keep it from an 18-year-old who wants to spend it, because GOV.UK describes the assets as always going directly to the intended beneficiary.

The usual alternative is a discretionary trust, in which the trustees decide who among a group of beneficiaries receives money and when, which gives far more control but brings the trust rates of tax and the charges set out in the discretionary trusts guide, including 20% on lifetime transfers above the nil rate band. Putting your own home or savings into a trust that you go on benefiting from is a different exercise again, which our guide to living trusts in the UK covers.

When is it worth paying for advice?

Paying into a Junior ISA or buying Premium Bonds rarely needs professional help, because the provider's own application process covers it. A formal bare trust holding investments, or gifts that are large compared with the rest of your estate, are different, and a solicitor regulated by the SRA, a STEP practitioner or an independent financial adviser can draft the trust deed and look at how the gift fits with your will. If you could foresee needing care, advice on the council charging rules is worth having before you give money away.

What to do next if you want to give money to grandchildren

1. Decide whether you are making a one-off gift or regular payments, and whether you are content for each grandchild to have the money outright at 18.

2. Check which Inheritance Tax exemptions you can use this tax year and keep a simple record of each gift and where it came from.

3. Ask the parents whether a Junior ISA already exists, so that your payments fit within the £9,000 limit for 2026/27.

4. If you set up a bare trust, write down who the trustees are and check within 90 days whether it needs registering with HMRC.

5. Review your will so that any gifts to grandchildren, and the age at which they inherit, are what you intend.

Whatever you choose, a note of where each account and trust is held makes life much easier for your family later, because when someone dies their executors have to find and tell every bank and investment provider the person dealt with. If that work does fall to your family, Legacy Trail's free notification service can contact the private-sector companies for them.