Tax advice of the week: Shield more with a bare trust
If you have children under 18 and are expecting to make capital gains on any investments, consider setting up a bare trust.
If you have children under 18 and are expecting to make capital gains on any investments, consider setting up a bare trust, says The Schmidt Report.
By holding a proportion of your shares or an investment property on which you are expecting to make gains in a bare trust, you can take advantage of their annual capital-gains tax (CGT) exemption. This is £10,100 for the 2009-2010 tax year, so with a CGT rate of 18%, the saving is around £1,800 tax per year per child.
A bare trust is one where an asset is in your name but held "entirely for the benefit of a child". Capital gains that arise from selling shares or properties therefore accrue to your children, not you and "unlike with income tax, there is no rule saying that capital gains which you have 'transferred' to your minor children get taxed on you".
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
However, the Estatesortrusts.co.uk website says bare trusts are "irrevocable" and the "terms of the trust, including the beneficiary, cannot be changed". Also, once a beneficiary reaches 18 they can call on the trust property immediately. So seek professional advice first.
Sign up for MoneyWeek's newsletters
Get the latest financial news, insights and expert analysis from our award-winning MoneyWeek team, to help you understand what really matters when it comes to your finances.
-
Which investment trusts could benefit from lower interest rates?
As vehicles for long-term investments, many investment trusts were hit when interest rates rose in 2022. With interest rates expected to fall by the end of the year, could now be the time to invest in one of these unloved sectors?
-
How to protect your personal and financial data from cyber attacks
M&S and the Co-op are the latest retailers to suffer from cyber hacks but consumers also need to be vigilant