Bare trusts
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Iain_For
Posts: 134 Forumite
We had our third grandchild last month and, as with the previous two, we'd like to set up some investments. At present, we've just opened an additional general account with Vanguard Investor for each, so far the only platform I've found that lets you open multiple investment accounts (any others out there?). However, as I'll be retiring next year, this is not an ideal situation as the income from those investments is treated as mine. I've therefore been looking at Bare Trusts, both HL and AJ Bell offer them, are there others?
The process looks simple enough, our grandkids would be entitled to the funds when they reach 18 but there is some flexibility to use the funds for their benefit sooner if needed. However, I don't fully understand how the trusts are registered, the 'election for a bare trust' form simply seems to be something you fill out and keep for yourself, the actual account is simply a designated account - does that designation carry the legal backing of showing the funds are intended for the grandchild?
Lots of little questions, any experience others may have would be greatly appreciated.
The process looks simple enough, our grandkids would be entitled to the funds when they reach 18 but there is some flexibility to use the funds for their benefit sooner if needed. However, I don't fully understand how the trusts are registered, the 'election for a bare trust' form simply seems to be something you fill out and keep for yourself, the actual account is simply a designated account - does that designation carry the legal backing of showing the funds are intended for the grandchild?
Lots of little questions, any experience others may have would be greatly appreciated.
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Trusts involve future work and taxation and can be a pain to set up. Its not normally worth it for most people as they can use general investment accounts under a designation or even hold the money in their own ISA but use individual funds for each grandchild to allow easy identification. This gives you control on when the grandchild gets the money rather than giving it to them at 18.
Do you earn over £2000 a year in dividends?I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.0 -
At the moment, you have not completed an election for bare trust.
As you say, you hold two accounts (perhaps designated "A B" and "J B") but in essence all you have done is given a nickname to your own accounts. You consider them as "earmarked" for your grandchildren but you might change your mind.
They are yours, taxed as yours, would be subject to IHT as yours and would not go to your grandchildren unless specifically bequeathed in your will. You are the beneficial owner of the assets
Once an "election for bare trust" has been completed, the child has received an absolute gift and is the beneficial owner of the assets - - it is clear that you hold the shares as bare trustee for the child who has the right to access and control from the age of 18.
See https://www.charles-stanley.co.uk/sites/www.charles-stanley.co.uk/files/32.01%20Guide%20to_Investing%20for%20your%20children_140515.pdf
Remember that if you now decide that you want to gift the assets into bare trust, there may be CGT considerations.0 -
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Thanks both, it does look like general accounts are the easier option, assuming the dividend allowance remains. Not likely to use up the dividend allowance just as yet, as we've configured things at present we have a £4k allowance split between my accounts and my wife's.
I'll be doing a small amount of private work after I leave salaried employment, just enough to remain a basic rate tax payer, so any change to tax legislation might require a rethink. Similarly in due course, I ought to think about IHT, and whether a different arrangement might facilitate these funds being classed as potentially exempt transfers.0 -
Similarly in due course, I ought to think about IHT, and whether a different arrangement might facilitate these funds being classed as potentially exempt transfers
If you are making regular gifts to those accounts from surplus income (rather than from your savings / capital) then they would be IHT exempt anyway.Old dog but always delighted to learn new tricks!0 -
Bare Trusts are really very simple to set up, unlike other forms of trusts.
Just note the proceeds are not tax free - they count as the child's income so often fall within the tax free allowances everyone gets, even children. However if they left school at 16 and got a job they may end up paying tax on it.
An even easier and completely tax free option is to contribute to the child's JISA if the parents have one set up. That is completely tax free and converts to an adult ISA automatically at the end.0 -
If you are making regular gifts to those accounts from surplus income (rather than from your savings / capital) then they would be IHT exempt anyway.
If the accounts are simply general accounts 'earmarked' for grandkids, then I don't think any funds going into them would count as gifts. For that, I think they need to be irrevocable designated accounts, which seem to be thin on the ground.0 -
An even easier and completely tax free option is to contribute to the child's JISA if the parents have one set up.
But cannot be accessed before age 18 - a bare trust may be accessible by the Trustees before that age for the child's benefit.
For example, this account held in bare trust for a child
https://www.bathbuildingsociety.co.uk/savings/personal-savings-and-investments/supersaver
All withdrawals must benefit the child. Our staff will ask for proof that the funds are being withdrawn for this reason if it is not obvious from the transaction. Please do not be offended if you are asked to prove the purpose of any withdrawal. Please note that in some circumstances the Society may refuse to complete a transaction if we are unsure if the funds are being used for the benefit of the child.
Or here
https://www.hl.co.uk/news/articles/archive/bare-trusts-and-investing-for-future-school-fees
It’s possible to use a general investment account to create a bare trust – for instance, the HL Junior Investment Account is set up as a bare trust under English law. This means the child becomes entitled to the assets in the trust when they turn 18. However, withdrawals can be made at any time as long as they are for the child’s benefit – in this example, to pay school fees. Please remember all investments can fall as well as rise in value so a child could get back less than invested.0 -
An even easier and completely tax free option is to contribute to the child's JISA if the parents have one set up. That is completely tax free and converts to an adult ISA automatically at the end.
We’ve left the JISAs up to the parents. Right now they’re cash JISAs in any case, our kids are more risk averse than us grandparents! In addition we’re looking to put aside some lump sums when I retire so the JISA limit would be an issue.0 -
I noticed you posting on the F&C thread too. If investing with them is an option you are considering then they (like most Investment Trusts) make setting it up as a Bare Trust extremely easy. It's just a matter of filling in a couple of extra boxes in the application form and you are done.
You have their range of funds to choose from and switch between.0
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