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, 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

Get 6 issues 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

Sign up

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.