Bare Trust vs Discretionary Trust

What is the difference between a bare trust and a discretionary trust?

The difference is who decides. A bare trust names a specific beneficiary who is absolutely entitled to the capital and income, so the trustee simply holds and hands over on request. A discretionary trust names a class of potential beneficiaries and gives the trustees the power to decide what gets paid out, to whom, how often, and on what conditions (gov.uk, types of trust, as at July 2026, subject to change).

What is a bare trust?

A bare trust, sometimes called a simple or nominee trust, holds assets for one named beneficiary who is absolutely entitled to them. The trustee has no discretion and must transfer the capital and income when the beneficiary asks, generally once they turn 18 in England and Wales, or 16 in Scotland (gov.uk, types of trust, as at July 2026, subject to change). Our note on bare trusts covers them in more depth.

Because the beneficiary is fixed from the outset, a bare trust is rigid. The person entitled cannot be changed, and the age at which they take control cannot be pushed back within the trust itself. That simplicity suits some situations, such as a grandparent setting aside a defined sum for one named grandchild, but it offers little room to respond as circumstances change.

What is a discretionary trust?

A discretionary trust holds assets for a class of potential beneficiaries rather than one fixed person. The trustees decide what gets paid out, whether income or capital, which beneficiary receives it, how often, and any conditions to attach (gov.uk, types of trust, as at July 2026, subject to change). No single beneficiary has an automatic right to anything until the trustees exercise that power.

This flexibility is the main draw. Trustees can respond to a beneficiary's changing needs, protect an inheritance for someone who is young or vulnerable, or hold back funds until a suitable moment. The trade-off is more responsibility for the trustees and, generally, a heavier tax treatment than a bare trust, as covered below.

A separate letter of wishes often guides discretionary trustees without binding them. See our note on how trusts work for the wider picture.

Bare trust vs discretionary trust, side by side

The two sit at opposite ends on control and flexibility. A bare trust is fixed and simple with the beneficiary taxed as their own; a discretionary trust is flexible but carries more trustee responsibility and, generally, its own tax charges. The table sets out the main contrasts, with the tax figures sourced below.

Feature	Bare trust	Discretionary trust
Beneficiary	One fixed, named person	A class of potential beneficiaries
Who controls the assets	The beneficiary, once of age	The trustees, at their discretion
Right to the assets	Absolute, generally from age 18 (16 in Scotland)	None automatic until trustees decide
Flexibility to change	Very limited	High
Who pays Income Tax	The beneficiary	The trustees
Inheritance Tax on setting up	Usually a potentially exempt transfer	Usually a chargeable lifetime transfer

Feature

Bare trust

Discretionary trust

Beneficiary

One fixed, named person

A class of potential beneficiaries

Who controls the assets

The beneficiary, once of age

The trustees, at their discretion

Right to the assets

Absolute, generally from age 18 (16 in Scotland)

None automatic until trustees decide

Flexibility to change

Very limited

High

Who pays Income Tax

The beneficiary

The trustees

Inheritance Tax on setting up

Usually a potentially exempt transfer

Usually a chargeable lifetime transfer

How is each trust taxed?

Tax is where the two diverge most. In a bare trust the beneficiary is treated as owning the assets, so they report and pay Income Tax on the trust income, using their own allowances (gov.uk, trusts and Income Tax, as at July 2026, subject to change). In a discretionary trust the trustees are responsible for the tax instead, generally at higher trust rates.

For a discretionary trust, most trusts pay no Income Tax on income up to a standard rate band, normally the first £500, after which non-dividend income is taxed at 45% and dividend income at 39.35% (gov.uk, trusts and Income Tax, as at July 2026, subject to change). Inheritance Tax also treats them differently: a transfer into a bare trust may be exempt if the person making it survives seven years, whereas a discretionary trust is generally within the relevant property regime, with 10-yearly anniversary charges and exit charges when assets leave (gov.uk, trusts and Inheritance Tax, as at July 2026, subject to change). How trusts are taxed can be involved, so it can be worth discussing with a qualified professional, such as an accountant or STEP practitioner.

A worked example (illustration only). Suppose a grandparent sets aside £30,000 that earns £1,000 of interest in a year. Held in a bare trust for one named grandchild, that £1,000 is treated as the grandchild's own income and reported through Self Assessment against their allowances (gov.uk, trusts and Income Tax, as at July 2026, subject to change). Held instead in a discretionary trust, the trustees pay the tax: broadly the first £500 sits in the standard rate band and the remaining £500 of interest is taxed at the 45% trust rate (gov.uk, as at July 2026, subject to change). Change the amounts, the income type or the beneficiaries and the answer changes, so this is general information rather than a calculation for any real trust.

Which do people tend to use, and when?

Neither is better in the abstract; each suits different aims. Many people choose a bare trust for a simple, one-off gift to a named child or grandchild, where certainty and low running costs matter more than flexibility. A discretionary trust is one option some consider where they want trustees to adapt over time, perhaps for several beneficiaries, a young family, or someone who may need support managing money.

Care planning deserves a note of caution. Deliberately giving assets away to reduce what a person might pay towards care can be treated by a local authority as a deliberate deprivation of assets and challenged, so a trust is not a way to sidestep care fees (gov.uk, as at July 2026, subject to change). Where later-life care is a concern, planning is about limiting and mitigating its impact within the rules, and it can be worth taking advice before acting.

Bare and discretionary trusts in Scotland and Northern Ireland

The two trust types exist across the UK, and the tax treatment is broadly UK-wide, but some details differ. In Scotland a bare trust beneficiary generally gains the right to the assets at 16 rather than 18 (gov.uk, types of trust, as at July 2026, subject to change), and Scotland has its own trust and succession law. Northern Ireland broadly follows the England and Wales approach but is a separate jurisdiction. Where a trust touches more than one UK nation, it can be worth taking advice in each.

Frequently asked questions

Is a bare trust or a discretionary trust better?

Neither is better in general; it depends on your aims. A bare trust suits a fixed gift to one named person who will take control at a set age, generally 18 in England and Wales or 16 in Scotland (gov.uk, as at July 2026, subject to change). A discretionary trust suits flexibility across several beneficiaries. Many people discuss the choice with a qualified professional.

Who pays the tax on a bare trust versus a discretionary trust?

In a bare trust the beneficiary is responsible for tax on the income and reports it through Self Assessment, using their own allowances. In a discretionary trust the trustees pay, generally at 45% on non-dividend income and 39.35% on dividends above the standard rate band, normally the first £500 (gov.uk, as at July 2026, subject to change).

Can you change a bare trust into a discretionary trust?

Generally no, not simply, because a bare trust beneficiary is absolutely entitled to the assets, so their entitlement cannot usually be taken away within the trust (gov.uk, as at July 2026, subject to change). Where flexibility is wanted from the outset, some people choose a discretionary trust instead. This is one area where it can be worth taking advice before setting anything up.

Does a discretionary trust pay Inheritance Tax?

A discretionary trust is generally within the relevant property regime, which can bring 10-yearly anniversary charges and exit charges when assets leave the trust (gov.uk, as at July 2026, subject to change). A transfer into a bare trust may instead be exempt if the person making it survives seven years. The figures and outcome depend on circumstances, so advice can help.

Do both types of trust need to be registered with HMRC?

Many trusts, including discretionary trusts and a range of bare trusts, must be registered with HMRC's Trust Registration Service, though some are excluded (gov.uk, as at July 2026, subject to change). Whether a particular trust needs registering, and by when, depends on its type and when it was set up, so it can be worth checking the current gov.uk guidance or asking a professional.

Which trust is used for gifts to grandchildren?

Both are, for different reasons. A bare trust is often used for a straightforward gift to one named grandchild who takes the assets at 18, or 16 in Scotland (gov.uk, as at July 2026, subject to change). A discretionary trust is one option some consider where several grandchildren may benefit, or where control beyond age 18 is wanted, depending on circumstances.

About Fairchild Oldfield

The Fairchild Oldfield team brings together estate planning, tax, independent financial advice and client care, working with families across England and Wales.

Fairchild Oldfield are estate planning specialists and will writers, not a firm of solicitors. This article is general information based on practical experience, not legal, tax or financial advice.

Important: This article is general information only and is not legal, tax or financial advice. Reading it does not create a professional relationship. It is based on the law of England and Wales, and other UK jurisdictions may differ. Figures and rules are current as at July 2026 and are subject to change. Before acting, many people choose to seek advice from a suitably qualified professional, such as a solicitor, a STEP practitioner, an accountant, or an FCA-authorised financial adviser, who can consider your individual circumstances.

Bare Trust vs Discretionary Trust

What is the difference between a bare trust and a discretionary trust?

What is a bare trust?

What is a discretionary trust?