Junior Investment Account

Bare trusts might sound complicated to set up but the opposite is true. It’s simply a case of applying for an account and confirming your intention to create a bare trust by completing the Election for Bare Trust form.

A trust is a legal, binding arrangement where money or assets are held by a person (the trustee) for the benefit of another (the beneficiary). Trusts are useful for saving for children because they allow you to pass on assets before children are old enough to hold them. They are also useful for inheritance tax (IHT) planning as gifts to trust can reduce the value of your estate, and therefore the amount of IHT needing to be paid in future.

Bare trusts are the simplest type of trust. They are set up when a ‘donor’ (frequently a grandparent) makes an irreversible gift into an account where a child is named as the beneficiary. There are normally two trustees – the donor often chooses to be a trustee so they can remain in control of how the money is invested.

One of the other tax benefits of bare trusts is that any gains or income belong to the child and are taxed as such, meaning there is often little or no tax to pay. An exception to this rule is income on gifts from parents – if the income exceeds £100, it’ll be taxed as if it belongs to the parent.

The child is automatically entitled to the assets held in a bare trust when they turn 18. Usually the money remains in trust until that time, however the trustees may be able to withdraw money earlier as long as it’s for the benefit of the child (e.g. to help with school fees).

More information on trusts is available from https://www.gov.uk/trusts-taxes.