FLP structures allow assets to be given away whilst the settler - such as a parent - keeps control of the trust. A gift will be exempt from inheritance tax so long as the donor survives for seven years after the FLP is set up. The general partner running the FLP’s assets is usually a limited company established by the parents and the children and grandchildren carry the status of limited partners in the vehicle.

When they are paid a capital gain or income such as a dividend, FLPs pay taxes on these payments, making them transparent vehicles.

Such features will look, at first sight, appealing to individuals and families contemplating the changed trust rules that came into force after the-then UK finance minister and now prime minister, Gordon Brown, brought out his finance act of 2006. As a result, since March 2006, contributions to a trust generally carry an upfront 20 per cent inheritance tax charge and, further, 6 per cent inheritance tax charges every 10 years. FLPs carry no such tax charges - potentially a significant benefit.

The international private client law firm Withers is a proponent of FLPs as an alternative to trusts, especially for those families with significant assets.

"Family partnerships are taking off in the UK as they are one of the few tax efficient inheritance planning opportunities available to domiciled clients and, thus, are a hot topic in the UK and offshore investment houses and among the Channel Islands and Isle of Man administrators," Jay Krause, a partner at Withers and recent author on FLPs, told WealthBriefing.

As evidence, Mr Krause said Withers has already worked on several FLPs. In one recent case, assets totalling £30 million were put into a vehicle. The total size of this sector, if it takes off as Mr Krause expects, could expand significantly. A number of firms are looking at the sector, such as RBC Wealth Management, part of Royal Bank of Canada, which has a significant trusts and wealth planning business operating from centres such as The Channel Islands.

A number of advisors and firms are bringing family partnerships to the attention of their clients. Other firms involved include Barclays Wealth, Merrills, Schroders, UBS and other investment houses, and Withers, Macfarlanes, Fosters, Speechley Bircham and other UK law firms, Bedells and SMP and offshore service providers.

Typically, people setting up a family limited partnership will use an offshore trust/fund administrator, such as one operating in the Channel Islands or Switzerland, because these centres have developed a large industry for this sort of work, Mr Krause said.

Fees charged for setting up such FLPs are broadly comparable, and certainly not more expensive, than setting up trusts, Mr Krause said. For example, he says the typical legal fees on a FLP with £10 million of assets works out at about £15,000, or about 15 basis points. “The initial setup costs should be roughly comparable to a trust,” he said.

So far, the market for FLPs in the UK is so young that getting broad data on costs, or likely asset sizes, is impossible. For some guidance, there is the US market to consider, as these vehicles have operated there for about a quarter of a century. In recent years, however, FLPs have come under the scrutiny of US tax authorities concerned they could be used to dodge taxes on gifts, said Mr Krause.

Worries that FLPs in the UK might prompt a similar crackdown by UK authorities are unfounded, however, Mr Krause said. The UK market is different because FLPs in the US have been used as a way to mitigate the impact of gift tax, which did not exist as a specific tax in the UK, he said.

A point to consider, he argues, is that FLPs cannot be used to claw tax back or defer it, which has been a concern for HMRC about other wealth planning vehicles in the past, he said. Liability partnership interests do not carry management rights, which means younger generations need not have access to underlying FLP assets.

Another benefit, as Withers explained in a recent briefing note on FLPs, is that the investment advisors and administrators of these vehicles must be regulated by the Financial Services Authority, the UK's financial regulator, or recognised offshore providers, which will be reassuring to their users by ensuring a minimum standard of compliance and regulatory oversight.

Elizabeth Middleton, an associate at private client law firm Boodle Hatfield, reckons FLPs add an option for wealth planners, although she said they lack some of the flexibility of trusts, such as the ability to vary interests in trusts depending on the financial knowledge and circumstances of the next generation.

“There is certainly a bit of a buzz about such partnerships, principally in the context of an alternative vehicle to trusts for holding the family business or assets,” she told WealthBriefing.

“The idea is that the second generation of a family business cannot just run off with assets or take responsibility before they are ready as only the general partner can manage the business. Limited partnerships are transparent for tax purposes so they give rights to income and capital distribution, as if the partners held the assets directly,” Ms Middleton said.

If partnership interests are given to minors by their parents, the parents will continue to pay tax on income paid out while the children are liable for capital gains, she said.

So far, Ms Middleton said she has not seen such a vehicle set up specifically for inheritance tax-planning purposes in the UK, although they may develop but she cautioned: “They are not a panacea for the long term tax efficient transfer of assets between generations.”

“It is one avenue to think about particularly where an inheritance tax charge could not be funded,” she added.

The UK government may imagine it has clamped down on what it regards as abuses of trust law, but with demand for the ability to plan inter-generational wealth remaining strong, it is hardly surprising that new vehicles are emerging to meet the need.