Income tax. Providing it falls within the child's allowances, there will be no tax to pay on income. Most children can 'earn' up to £18,500 per year without incurring tax (personal allowance of £12,500, starting rate for savings of up to £5,000 and personal savings allowance of £1,000). The one exception to the rule above concerns gifts (assets) put into trust by a parent. If the income from these exceeds £100 per year, it will be taxed at the parent's marginal rate and the parent will have to declare it on their own Self Assessment tax return. Parents may therefore prefer to invest in assets that do not generate an income. This is one reason the Tower Trust (bare trust) arrangement tends to be preferred by grandparents.
Capital gains tax (CGT). Most children also have a Capital Gains Tax (CGT) Annual Exemption of £12,100. This means that when trustees come to sell investments to pay for a child's school fees or other needs, there will be no tax to pay on gains up to this amount. Any gains above the allowance will be taxed at 10% (or 20% on any gains falling into the higher rate tax bracket) and are usually paid by the trustees.
One thing to consider is that transferring investments you already hold into a Tower Trust is treated as a disposal of the assets - so you may have to pay CGT if they have risen in value while you have held them.
However, there would be no CGT to pay when the child eventually takes ownership of the assets at age 18, as they are already the beneficial owner (unless they sell the investments).
Inheritance tax (IHT). Assets paid into the trust will either fall within the annual IHT exemption (up to £3,000 a year which is exempt immediately), the small gifts or 'gifts out of excess income' exemptions, or be a Potentially Exempt Transfer (PET). A PET is dependent on the donor surviving seven years beyond making the gift for it not to form part of their estate for IHT purposes. If the donor does not survive seven years, the beneficiary may need to pay IHT and, again, it will fall to the child's parent or legal guardian to ensure this happens.
Please be aware, if the child passes away the bare trust will form part of their estate and, under the intestacy rules, their parents will inherit the assets and IHT may be due.