Taxes Consolidation Act 1997 section 798

Transfer of interest in trade to children

Section 798 treats the transfer of a trade to a partnership involving the trader's children or civil partner's children as a settlement, so that the transferred profits remain taxable as income of the original trader.

• Where a trade carried on by a person (alone or in partnership) becomes carried on by, or in partnership with, one or more children of that person or of that person's civil partner, the arrangement is deemed to be a settlement and the original trader is treated as the settlor.
• Post-transfer profits arising to the children are deemed to remain the income of the settlor for the purposes of the anti-avoidance settlement provisions in Chapter 6.
• Where a child is actively engaged in carrying on the trade, the deemed income is reduced by an amount equal to the employment income that would have been allowable as a deduction had the child been an employee rather than a partner (the "appropriate sum").
• The appropriate sum is treated as Schedule E income of the child, ensuring that bona fide remuneration for genuine work is taxed in the child's hands rather than being attributed back to the settlor.