(1). (i) The transfers of the properties to the trust will be disposals at market value for the purposes of CGT. However, the creation of a trust during the lifetime of the settlor is a chargeable lifetime transfer (regardless of the nature of the trust), such that the transfer will be immediately chargeable to IHT. Accordingly, gift holdover relief will be available in respect of the gains. The relief can be claimed by the settlor alone and does not require the signature of the trustees of the trust.
(ii) As noted above, gift holdover relief will be available regardless of the nature of the trust. Accordingly, the CGT implications will be the same as (i).
(2). IHT implications
A lifetime transfer of property to any trust is a chargeable lifetime transfer. The fall in value of Anthony’s shareholding will need to be calculated because he is not transferring all of his shares.
100% business property relief will be available on the non-excepted assets. Accordingly, only 6% of the fall in value of Anthony’s estate as reduced by any available annual exemptions will be subject to IHT. IHT would then be due on the excess of this amount over the nil rate band at the date of the gift as reduced by any chargeable transfers in the previous seven years.
The maximum IHT liability would be 25% of 6% of the fall in value if Anthony is paying the tax. A tax rate of 20%, rather than 25% will apply if the trustees are going to pay the tax.
CGT implications
Anthony will realise a chargeable gain equal to the market value of the shares less their cost.
Gift holdover relief will be available because the transfer to the trust will be immediately chargeable to IHT. Accordingly, the whole of the gain can be held over, not just the proportion relating to chargeable business assets.
The trustees’ base cost in the shares will be their market value less the gain held over.