Using a Bare Trust for Inheritance Tax Planning

• Gifts into a Bare Trust are Potentially Exempt Transfers for IHT
• There is no lifetime value limit on gifts into a Bare Trust
• The beneficiary becomes absolutely entitled at age 18
• Assets form part of the beneficiary’s estate on death
• Bare Trusts suit simple, low-risk planning, not long-term family control

A Bare Trust is a trust where the beneficiary has an immediate and absolute right to both income and capital. Trustees hold assets in name only. For tax purposes, the beneficiary is treated as the owner.

A PET is a lifetime gift that falls outside the donor’s estate if they survive seven years from the date of the gift. If death occurs within seven years, some or all of the gift may be subject to Inheritance Tax.

Inheritance Tax treatment is governed by the PET rules, not the trust regime. This is the core distinction from Discretionary Trusts.Inheritance Tax treatment is governed by the PET rules, not the trust regime. This is the core distinction from Discretionary Trusts.

When assets are placed into a Bare Trust:

• The gift is treated as a PET
• There is no immediate Inheritance Tax charge
• There is no cap equivalent to the Nil Rate Band
• Full IHT mitigation depends on surviving seven years

If the settlor survives seven years, the gifted value falls entirely outside their estate.

• Unlimited value gifts as PETs
• No ten-year anniversary charges
• Beneficiary taxed directly
• No control once beneficiary reaches 18

• Lifetime gifts capped at the Nil Rate Band
• Entry charges possible above the threshold
• Ongoing ten-year and exit charges
• Trustees retain full control over distributions

The choice is not about which is better. It is about control versus simplicity.

Bare Trusts benefit from:

• The beneficiary’s full annual CGT exemption
• Potentially lower CGT rates if beneficiaries are non or basic rate taxpayers

Discretionary Trusts receive only half the individual CGT annual exemption, which materially affects long-term planning outcomes.

Bare Trusts are avoided in many estate plans because:

• Beneficiaries can demand full capital at age 18
• Assets form part of the beneficiary’s estate if they die
• There is no flexibility to redirect assets
• Trustees have no discretionary powers

These risks are often unacceptable in complex family or high-value estates.

• Grandparents funding education or early-life support
• Straightforward gifting where control is not required

• Discounted Gift Trust arrangements structured as Bare Trusts
• Retaining a fixed withdrawal right while gifting capital
• Preventing beneficiary access during the settlor’s lifetime

These arrangements require specialist structuring and advice.

In some cases:

• A large gift is made into a Bare Trust as a PET
• A simultaneous Nil Rate Band gift is made into a Discretionary Trust

If the settlor survives seven years, both structures can remove substantial value from the estate while balancing control and tax efficiency.

This is advanced planning and not suitable without integrated legal and tax advice.

Many people believe Bare Trusts are a simple way to “avoid” Inheritance Tax. 

This is incorrect.

Bare Trusts are outright gifts for tax purposes. They work only if:

• You are comfortable losing control
• The beneficiary is appropriate
• The seven-year rule is acceptable

Used incorrectly, Bare Trusts can create family disputes and future tax problems.

A Bare Trust may be suitable if:

• You are comfortable gifting assets outright
• Beneficiaries are financially mature
• Long-term control is not required
• Simplicity is a priority

A Bare Trust is usually unsuitable if:

• You want to control timing or purpose of distributions
• You are not comfortable with the beneficiary taking full ownership at age 18
• Asset protection is required
• Family circumstances may change

• Using Bare Trusts for complex estates
• Assuming trustees retain control
• Ignoring the beneficiary’s future estate position
• Treating Bare Trusts as interchangeable with Discretionary Trusts

Bare Trusts remain a legitimate and powerful Inheritance Tax planning tool when used in the right circumstances. Their strength lies in simplicity and unlimited gifting, not flexibility or control.

For many families, Bare Trusts work best as part of a wider, integrated estate plan rather than as a standalone solution.

Disclaimer. The information in this article is general in nature and does not constitute personal financial, tax, or legal advice. UK tax legislation changes frequently, and the specific application of any rule or strategy depends on individual circumstances. Figures, thresholds, and reliefs mentioned are correct as of the 2026 to 2027 tax year unless otherwise stated. Before acting on any information here, consult a qualified adviser who has reviewed your full situation. Bluebond Tax Planning provides personal recommendations only under a signed client agreement, following a full review. Bluebond Tax Planning operates under UK legal frameworks and recognised professional conduct standards. Tax planning and legal work are not FCA regulated.