(1). (i) The rental income will be subject to income tax in the hands of the trustees. It will then be taxed again as part of Gerard’s taxable income and there will be a tax credit for the tax paid by the trustees.
(ii) The property will be transferred to the remainderman at market value. Accordingly, the CGT base cost of the property will be its market value at the time of the transfer less gift holdover relief, if claimed.
(2). On the transfer of property from a trust to a beneficiary there will be an IHT exit charge payable by the trustees of up to 6% of the value of the assets.
(3). Statement A is false.
Chargeable gains will be calculated in the normal way by reference to the market value of the assets transferred. However, gift holdover relief will be available because the transfer will be immediately subject to IHT.
Statement B is false.
Gift holdover relief is available where a transfer is immediately subject to IHT (as it is here because the transfer is a chargeable lifetime transfer); there is no need for there to be an IHT liability. For example, gift holdover relief will be available even where a chargeable lifetime transfer is covered by the transferor’s nil rate band.