Chapter: 2 - Inheritance Tax Mitigation: The Basics

Providing for children: income tax

2.10.4

An anti-avoidance regime operates where income or gains arise to, or to trustees of a settlement for, minor children of the transferor/settlor (see 3.2.5).  In broad terms, for Income Tax, subject to a de minimis limit of £100 per transferor per child per tax year, the income is treated as that of the parent (ITTOIA 2005 s629).  The only exception is the case where the transfer of assets occurred before 9 March 1999 and the income from those assets belongs absolutely to the child as it arises (ie in particular Trustee Act 1925 s31 has been excluded, so that the trustees have no power to accumulate income, but must retain it for the child until such time as they can get a valid receipt, whether from the parent or guardian or from the child on attaining age 18).  Income which is accumulated and then paid out in a subsequent year while the child is still under the age of 18 does not escape assessment on the parent settlor.