Bare trusts ― income tax and CGT

Produced by a Tolley Trusts and Inheritance Tax expert

Trusts and Inheritance Tax

Guidance

This guidance note explains how trustees of bare trusts are treated for income tax and capital gains purposes. Although a bare trust is, in equity, a type of trust, for both income tax and capital gains tax purposes its existence is transparent. This means that no tax liability falls on the trustees in respect of their income and chargeable gains. Rather, the two tax regimes target and tax the beneficiary of such a trust at the beneficiary’s rates of tax.

Income tax

Although the income tax regime provides that bare trusts are not subject to the rules that apply to other types of trust, it does not explicitly say how to treat the income arising from property held in a bare trust. The following rules have been established:

•
any income arising to a bare trustee is assessable on the beneficiary as they are absolutely entitled to that income
•
the beneficiary must declare any income on their personal tax return
•
although the bare trustee may pay income tax on behalf

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