Bare Trust Tax Implications for Beneficiary

Monkey2K

I set up a Bare Trust to save money to pass on to my child some time ago.
When I transfer the Bare Trust to my son, what are the tax implications ie how much capital gains tax would he have to pay on say a £30K transfer?
Just looking for a ball park figure.  He is currently a student so no income beyond a student loan.

bowlhead99

If it is a bare trust he is already a beneficiary of all the income and gains that happen with the assets that you are holding for him. So for example if 'the trust' makes £1000 of capital gain this year or £50 of dividend or interest income this year, it is his, not yours, and taxable on him not you. So if the amount of other income or gains he had on top of that during the tax year was enough for him to exceed his personal allowances and exemptions this year, he would need to pay tax.  That would be the case even if you continued to look after the money or investments for him on trust, with the intention of transferring to him at some point later.   

Generally children and students don't have much income of their own so they are not at risk of using up their allowances - but if they were (e.g. lucrative part time or holiday job) you should have been giving him information about how much income or gains were made by the trust as you went along to make sure he didn't dodge any tax that was due.

As the money was beneficially his all along, there is no tax implication on receiving a transfer of cash or assets from a trust where you are the bare beneficiary/ It would simply be like me transferring £30k from my bank account to my other bank account. The tax man doesn't get a piece just because I moved my assets from one place to another.  The amount can simply build up in the trust for now, with him being responsible for the tax on income and gains within the trust, and he can just take control of the actually trust cash or assets when he wants them (assuming he is over 18 by the time he wants them). A person taking control of assets which were beneficially theirs anyway (via a Bare Trust) is not a taxable event.

One caveat to the above, when I said that a receipt of £50 of income within a tax year would be taxable on him not you, there can be an exception for bigger amounts, if he is a minor.  If he (or his bare trust) receives over £100 of income in a year and he is a minor and unmarried, and the cash or assets in the trust were originally contributed by you as his parent, then the income is taxable on you rather than him. That's to avoid people doing all their own income investing in their child's name when they are not really treating it as the child's money.  But if by 'student' you mean he's at least 18 and at college/university (rather than being an under-18 GSCE or A Level student), then the special rule for 'an unmarried minor getting over £100 of investment income in a tax year from a trust funded by a parent as settlor' doesn't apply.

xylophone

For IHT purposes, the gifts  are potentially Exempt Transfers.  As the beneficiary of a Bare Trust, the child ( as beneficial owner) has the absolute right to access and control from the age of 18 (16 in Scotland).

When  a parent make gifts  into  Bare Trust for the benefit of his minor unmarried (and not civilly partnered) child,  if  income generated  on all gifts from that same parent exceeds £100 gross in a tax year, it will be assessed to income tax on the donor parent – the so-called “£100 rule”).
This does not change the fact that the whole of the gift and the interest arising belongs beneficially to the child.
Did you take note of the above during the  appropriate period?

With  regard to Capital Gains Tax, the position is different in that any gain is taxable on the child beneficiary ( who has the standard CGT allowance), not on  the parent.

Monkey2K

I haven't been recording dividends on his Bare Trust in my tax returns but the figures haven't been significant.

My concern was whether he would be subject to CGT on receipt of the £30K trust fund but now realise that he wouldn't be taxed on the bare trust money which has always been his?

xylophone

He has always been the beneficial owner of the cash/assets within the Bare Trust ( and indeed of any income arising thereon) - it is just that as his parent donated the cash/assets, the "£100 rule" applied.

Now that he has reached the age of 18, you can simply contact the account providers and remove yourself as Trustee - he then takes over the account(s).

With regard to CGT, he has his own CGT Allowance and the normal rules apply.