Bare trust

bungleberg

I am a trustee for my nephew and niece and would like to invest 55k in a tax efficient manner in their names. I’m not too keen on an annual tax return. A friend said a barre trust might be an option. Does anyone know of any bare trust investment providers. And anyone have any experience of these?

Thanks in advance

xylophone

Was the money left to the children in a will (and if so, has it "indefeasibly vested") or is it a gift from another source?

http://www.prescient-financial.com/docs/Bare%20trust%20returns.pdf

bungleberg

It was left in a will and they are not to have the proceeds until they are 21

xylophone

they are not to have the proceeds until they are 21

Has the bequest "indefeasibly vested" in the children? See link above.

What exactly does the will say?

bungleberg

xylophone wrote: »

Has the bequest "indefeasibly vested" in the children? See link above.

What exactly does the will say?

I give the remainder of all of my property ( my “Trust Fund” ) to my trustees upon trust.

To divide the balance of my trust fund in two equal shares between the following persons and in the following shares.

One such share (1) to xxxxxxxx absolutely upon reaching the age of 21 years

Malthusian

Although we've only seen a fragment of the Will it sounds distinctly like their respective shares are in bare trust for them. (The answer to xylophone's question is yes.) I'm assuming that the other share is inherited in the same way for the other nephew/iece.

They will both be absolutely entitled to their respective shares at 18 (*edit* 16 in Scotland); the bit from "upon" to "21 years" is legally meaningless.

Income and gains are taxable as their own. If the money is invested for growth it is very unlikely they will need to complete a tax return as income and gains will be within their allowances (unless they are already loaded even before they inherited £27.5k).

Most investment platforms will provide bare trust accounts. All you need is a normal unwrapped investment account with a designation. Bank accounts that can be opened in bare trust are thinner on the ground, but still not too difficult to find. How old are they?

Malthusian

Since you mentioned "tax efficiency" - one option (which others will probably outline in more detail) is a Junior ISA.

However, unless nephew and niece are loaded with other lucre than the £27.5k, a Junior ISA is largely superfluous as they won't have any tax to save (income and gains from £27.5k should realistically be within their annual allowances). The main advantage is that it automatically becomes an adult ISA at age 18. The big disadvantage is that Junior ISAs have to be opened and controlled by the parent or guardian - which means the trustee (you) loses control over the money which they are still responsible for. (Unless the parent / guardian is also a trustee under the Will.)

Unless there is an actual tax advantage to opening a Junior ISA and the trustee has absolute faith in the parent / guardian, Junior ISAs should be avoided as trustees can't palm off responsibility to a third party.

*edit* And if they're in Scotland the trustees should not use a Junior ISA because the bairns are absolutely entitled to the cash at 16 and putting in a Junior ISA locks it away until 18, och aye the noo.

bowlhead99

Malthusian wrote: »

Although we've only seen a fragment of the Will it sounds distinctly like their respective shares are in bare trust for them. (The answer to xylophone's question is yes.) I'm assuming that the other share is inherited in the same way for the other nephew/iece.

Based on the fragment, the trust property is divided with a share only allocated absolutely to person X 'upon reaching the age of 21 years'. Who gets it if they don't reach 21 years? Ideally you wouldn't want someone to be paying tax on property that is never actually allocated to them because they die off early...

xylophone

If the bequest has "indefeasibly vested" in the children so that the funds should be held in bare trust for each, then the money now belongs beneficially to each child.

Therefore the funds fall into the "estate" of each child so that in the event of death, the money would need to be passed to the child's legal heirs?

Any income arising from the funds in the bare Trust are taxable on the beneficiary.

It is likely that this will be well within each child's tax allowances.

https://www.thepfs.org/learning-index/articles/new-tax-year-for-trusts-trustees-and-beneficiaries/40936

Bare trusts

For income tax and CGT bare trusts are generally ignored unless (for income tax purposes only) the parental settlor provisions apply. This means that under a non-parental bare trust all income and, under any bare trust, all capital gains are assessed on the beneficiary at the beneficiary's tax rate(s). The PSA and the dividend allowance are available as well as the full annual CGT exemption.

Bath Building Society (for example) will permit an account to be opened for a child and controlled by a Trustee up to the age of 18



https://www.bathbuildingsociety.co.uk/savings/personal-savings-and-investments/supersaver

It is also possible to open stock market based accounts in bare trust - examples

https://www.hl.co.uk/investment-services/investing-for-children/junior-investment-account

https://www.youinvest.co.uk/investing-for-children/dealing-accounts-for-children

https://www.telegraph.co.uk/money/special-reports/ask-expert-should-invest20000-kids/

xylophone

Based on the fragment, the trust property is divided with a share only allocated absolutely to person X 'upon reaching the age of 21 years'.

See

http://www.prescient-financial.com/docs/Bare%20trust%20returns.pdf

https://www.gov.uk/hmrc-internal-manuals/trusts-settlements-and-estates-manual/tsem1563

bungleberg

Many thanks for the advice the beneficiaries are 15 and 11 years of age. There were 4 other beneficiaries but they were already 21 or over at the time of the estate being wound up.