The benefits of using a bare or possession trusts for company management and control: a bare trust is often considered a simple trust, virtually a halfway house between a trust and actual ownership. Used correctly, however, a bare trust can be a surprisingly attractive way to organise limited company ownership and control. So if you're thinking about a trust and want to consider a bare or possession trust arrangement, then get in touch and let Coddan Formations Agency help you make the most of your investment.
Bare trusts are trusts where one or more trustees passively hold assets for the beneficiary. Often used to hold shares for children, this kind of trust can be set up with minimal paperwork, and can offer a number of tax advantages that you can use to protect income and also to get around inheritance tax.
If the beneficiary is not your child it can be a very tax-effective structure, as the income and capital gains are then considered the beneficiary's tax liability.
If you sit in the higher tax bracket then this form of income shifting can help to protect a good portion of your income from HMRC, as the child will have a tax-free allowance followed by a much lower percentage of tax on the remainder. For a small business this can prove useful, as simply placing the shares in a bare trust in a minor’s name means that a good portion of the profits will be taxed at a preferential rate.
If you are placing assets into a trust for your own child and they earn an income of more than £100, the entire income is considered to be the parents' until the child reaches the age of 18. So it becomes harder to income shift within your own family, but it is still a viable vehicle for simply storing assets that don’t make any form of capital gain or income.