How not to fall foul of parental settlement rules

Parents' using their children to pass down wealth to future generations is commonplace in inheritance tax planning. Parents will often set up trusts for this purpose, but if the trust produces income for their minor child then anti-avoidance rules known as the ‘parental settlement rules' will apply. These rules are contained in Section 629 Income Tax (Trading and Other Income) Act 2005. A minor child for the purposes of these rules is a child of the settlor who is under age 18 and is not married or in a registered civil partnership. Different types of trust Parental settlements for...