Bare trusts are widely used in property investment but frequently misunderstood. The nominee (the person on the title) is treated as entirely transparent for tax purposes: the beneficial owner is taxed as if they held the legal title directly. This creates significant traps: SDLT on the original transfer to the nominee; CGT on the transfer out; and income tax on rental income flowing through the nominee to the beneficial owner. Many landlords set up nominee arrangements without fully understanding the tax consequences — and are surprised to find that HMRC looks through the nominee and taxes them as the true owner.
What Is a Bare Trust?
A bare trust (also called a simple trust or nominee arrangement) is a trust where: (a) the trustee (nominee) holds legal title to the property; (b) the beneficiary (beneficial owner) has an absolute, indefeasible right to both the capital and the income of the trust; (c) the trustee has no discretion — they must deal with the property exactly as directed by the beneficial owner. Key features: the beneficiary can call for the trust to be wound up and the legal title transferred to them at any time (Saunders v Vautier (1841)); the trustee is entirely 'transparent' for tax purposes — the beneficial owner is taxed as if they held the property directly; bare trusts arise deliberately (nominee arrangements; family declarations of trust) or incidentally (e.g. where a property is bought in the name of a company that holds it as nominee for individual shareholders). Common uses in property: (i) nominee company arrangements where an individual uses a company to hold legal title for administrative convenience; (ii) family bare trusts where parents hold property as nominees for adult children; (iii) buy-to-let investors who want to hold property in an adult child's name (who has a lower tax rate) while retaining beneficial ownership; (iv) joint purchase arrangements where the legal title is held in two names but the beneficial interests are different from the legal title (e.g. 70:30 rather than 50:50).
- Bare trust = nominee arrangement: trustee holds legal title; beneficial owner has absolute right to capital and income; trustee has zero discretion
- Saunders v Vautier: the beneficial owner can call for the legal title to be transferred to them at any time — the trust can be collapsed on demand
- Tax transparency: HMRC looks through the bare trust and taxes the beneficial owner as if they held the property directly
- Common property uses: nominee companies, family property structures, different beneficial/legal title splits, joint ownership with unequal shares
- No trust deed required: a bare trust can exist without a formal deed — though a Declaration of Trust is strongly recommended to evidence the arrangement
SDLT on Bare Trust Arrangements
Stamp Duty Land Tax treatment of bare trusts requires careful analysis: (a) Transfer to a nominee: a transfer of property from an individual to a bare trust nominee is generally subject to SDLT — FA 2003 s.71A(2) provides that where property is transferred to a bare trust, the beneficiary is treated as the purchaser, not the nominee; accordingly, SDLT is calculated on the beneficial owner's position — including the 3% surcharge if the beneficial owner already owns another residential property; (b) Transfer from nominee to beneficial owner (collapsing the trust): a transfer of property from a nominee to the beneficial owner in satisfaction of the bare trust is treated as a transfer from the bare trustee to the beneficiary — generally exempt from SDLT under FA 2003 Schedule 3 para.1 if there is no chargeable consideration; however, if the property is mortgaged and the beneficial owner takes over the mortgage liability, that constitutes consideration and SDLT may be payable; (c) SDLT and the 3% surcharge: the beneficial owner's existing property portfolio is relevant for SDLT surcharge purposes, not the nominee's — landlords must account for all properties held beneficially when calculating SDLT rates; (d) Additional Dwelling Supplement in Scotland: the same principle applies in Scotland under LBTT — the beneficial owner's position determines the ADS liability.
- Transfer to nominee: SDLT is charged; the beneficial owner is the purchaser for SDLT purposes — surcharge applies based on beneficial owner's portfolio, not the nominee's
- Transfer out (collapse): generally SDLT-exempt where no consideration changes hands; but mortgage assumption by the beneficial owner is chargeable consideration
- 3% surcharge: applies based on the beneficial owner's portfolio — cannot avoid surcharge by putting property in a nominee's name
- FA 2003 s.71A(2): the statutory provision treating the beneficial owner as the purchaser for bare trust SDLT purposes
- Seek advice before restructuring: unwinding a bare trust may trigger SDLT if there is outstanding mortgage debt — always model the tax position before transferring
CGT on Bare Trust Property
Capital Gains Tax treatment of bare trusts: (a) Disposals by the nominee: TCGA 1992 s.60 provides that the acts of a bare trustee are treated as the acts of the beneficial owner for CGT purposes — the nominee's disposal is taxed as the beneficial owner's disposal; (b) CGT rate: the beneficial owner is taxed at their marginal CGT rate — 18% (basic rate) or 24% (higher rate) for residential property gains (post-October 2024 rates); (c) Annual exempt amount: the £3,000 annual exempt amount (2024/25) belongs to the beneficial owner — it cannot be multiplied by having multiple nominees hold multiple properties for the same beneficial owner; (d) Transfer from individual to nominee company: a transfer of property from an individual to a nominee company is technically a disposal by the individual for CGT purposes — even though the company holds the property as nominee; in practice, HMRC generally treats the transfer to a bare trust nominee as not triggering CGT (because the beneficial owner remains unchanged and s.60 treats the nominee as transparent); however, this analysis must be verified and documented; (e) Private Residence Relief: if the beneficial owner lived in the property as their main residence, PRR is available based on the beneficial owner's occupation — not whether the nominee occupied it; (f) 60-day reporting: CGT on residential property disposals must be reported and paid within 60 days of completion — the beneficial owner (not the nominee) is responsible for this report.
- TCGA 1992 s.60: acts of the bare trustee are the acts of the beneficial owner for CGT — the nominee's disposals are taxed as if the beneficial owner made them
- CGT rate: applied at the beneficial owner's marginal rate; annual exempt amount belongs to the beneficial owner — not to each nominee separately
- Transfer to nominee: generally not a CGT disposal (beneficial ownership unchanged) but must be documented and verified
- PRR: based on the beneficial owner's occupation — available on the beneficial owner's own main residence claim
- 60-day CGT reporting: the beneficial owner (not the nominee) is responsible for reporting and paying CGT within 60 days of completion
Income Tax and IHT on Bare Trust Property
Income Tax: (a) Rental income from bare trust property is taxed as the beneficial owner's income — the nominee receives rent as agent but it is the beneficial owner's income for tax purposes; the beneficial owner must declare it on their self-assessment return; (b) Multiple beneficiaries: where a property is held in bare trust for two or more beneficial owners in specific shares, each is taxed on their share of the rental income — it is split income, not the trustee's income; (c) Allowable expenses: the beneficial owner can deduct allowable expenses (mortgage interest subject to the s.24 restriction; repair and maintenance; management fees; insurance) against rental income as if they were the direct landlord; (d) Inheritance Tax: bare trust property is generally treated as the beneficial owner's estate for IHT purposes — there is no trust-specific IHT regime for bare trusts (unlike discretionary or interest in possession trusts); the beneficial owner's estate includes the bare trust property at its market value; on the beneficial owner's death, the property passes under their will or intestacy; (e) Gift to a bare trust for a minor: if a parent places property in bare trust for a minor child, the income and gains are generally taxed as the parent's (not the child's) under the parental settlement rules in ITTOIA 2005 s.629 — until the child turns 18.
- Income tax: rental income is taxed as the beneficial owner's income — declare it on self-assessment; the nominee is merely an agent
- Expenses: all allowable expenses (subject to the s.24 mortgage interest restriction) are deductible against the beneficial owner's rental income
- IHT: bare trust property forms part of the beneficial owner's estate for IHT — no separate trust IHT charges apply
- Death: bare trust property passes under the beneficial owner's will or intestacy — the nominee is obliged to transfer legal title to the estate
- Minor children: income/gains from property held in bare trust for a minor are generally taxed as the parent's under the parental settlement rules — until age 18
Frequently asked questions
What is the difference between a bare trust and a discretionary trust for property?+
In a bare trust, the beneficial owner has an absolute and immediate right to both the capital and income — the trustee has no discretion. The beneficial owner is taxed directly as if they held the property themselves. In a discretionary trust, the trustee has discretion about how and when to apply income and capital among a class of beneficiaries. Discretionary trusts are subject to a separate and more complex IHT regime — including ten-year anniversary charges and exit charges — and are taxed at the trust tax rate (45% income tax; 20% CGT at trust rate for gains above the trust's annual exempt amount). For most landlords, a bare trust (nominee) is administratively simpler and tax-transparent; discretionary trusts are more complex and used for different planning objectives.
Does putting property in a nominee company's name save SDLT?+
No. Under Finance Act 2003 s.71A, for bare trust arrangements the beneficial owner is treated as the purchaser for SDLT purposes — not the nominee company. The 3% residential surcharge and higher rates for additional dwellings (HRAD) are determined by reference to the beneficial owner's property portfolio, not the nominee's. Attempting to use a nominee company purely to avoid SDLT surcharges is ineffective and may attract HMRC scrutiny.
Do I need a formal Declaration of Trust for a bare trust?+
A bare trust does not require a formal deed to be legally valid — it can arise informally from the circumstances (e.g. property registered in A's name but purchased with B's money with B's intention to be the beneficial owner). However, a formal Declaration of Trust is strongly recommended: (1) it provides clear evidence of the beneficial interests in case of dispute; (2) it is essential for SDLT, CGT, and income tax compliance purposes — HMRC will want to see evidence of the beneficial ownership structure; (3) for property held as nominee for a company, the Declaration of Trust prevents the property being treated as the nominee's asset for company law purposes; (4) it avoids the need for Goodman v Gallant-style litigation if the beneficial interests are later disputed.
Who is responsible for CGT reporting when a bare trust property is sold?+
The beneficial owner — not the nominee — is responsible for reporting and paying CGT on the sale of bare trust property. Under TCGA 1992 s.60, the acts of the bare trustee are treated as the acts of the beneficial owner. The beneficial owner must file the 60-day CGT report within 60 days of completion using HMRC's online service, and must also include the gain in their annual self-assessment return. If the nominee (as registered proprietor) signs the transfer, the beneficial owner must still make the report — the nominee's actions are attributed to them.