UKI want to set up a trust for my children. What are my options?
In the UK, you can set up several types of trusts for your children — including bare trusts, discretionary trusts, and interest-in-possession trusts — each with different tax, control, and flexibility implications.
What the Law Says
UK trust law gives parents and grandparents flexibility in setting up trusts for children, but inheritance tax (IHT) rules — especially under the Inheritance Tax Act 1984 — significantly affect how and when trusts are taxed.
The Inheritance Tax Act 1984 governs how trusts are treated for tax purposes. Section 3A is particularly relevant to trusts created on or after 22 March 2006, introducing the 'relevant property regime' for most non-interest-in-possession trusts. This means many trusts — like discretionary trusts — are subject to periodic charges every 10 years and exit charges when assets leave the trust.
Bare trusts are the simplest option: the child is the absolute beneficial owner from the outset, and the trustee holds assets only as a nominee. Because the child owns the assets legally and beneficially, no IHT charge arises on creation — and the trust is not subject to the 10-year or exit charges under s. 3A.
Discretionary trusts give trustees wide powers to decide how and when to distribute income or capital among beneficiaries (e.g., your children). However, they fall squarely within the 'relevant property' regime — triggering potential IHT charges at 20% on setup (if over the nil-rate band), then 6% every 10 years, and again on distributions.
Statutory TextSection 3A — Relevant property: (1) In this Act 'relevant property' means property which is not excluded property and is not property which is comprised in a settlement to which section 49 applies.
— Inheritance Tax Act 1984, s. 3A — Relevant property
What to Do
Decide your goal: full control (discretionary), simplicity (bare), or fixed entitlement (interest-in-possession)
Check if your trust will be 'relevant property' under s. 3A — this determines IHT treatment
Calculate potential IHT: 20% on creation (if over £325,000), plus 6% every 10 years for relevant property trusts
Appoint trustworthy trustees — at least two is advisable — and draft clear trust deeds
Register the trust with HMRC’s Trust Registration Service (TRS) if it generates UK tax liability or holds UK assets
Sources
Not legal advice. This article is general information based on publicly available sources, written for educational purposes. Laws change and individual situations vary. Consult a licensed attorney in your jurisdiction before acting on anything you read here. Last reviewed: 2026-06-08.