King, a wealthy client of your firm with a significant property portfolio, requires advice on the capital gains tax and inheritance tax implications of transferring assets to a trust and to his two children.

King:
– Is resident and domiciled in the UK.
– Is an additional rate taxpayer.
– Has used his capital gains tax annual exempt amount for the tax year 2015/16.
– Has made one previous lifetime gift of £25,000 to his daughter, Florentyna, on 1 June 2014.
– It should be assumed that King will die on 1 May 2017.

Cottage in Newtown:
– This property is wholly owned by King.
– It is expected to have a value of £315,000 on 1 October 2015.

Creation of the interest in possession trust:
– King will pay any inheritance tax arising as a result of the gifts made to the trust.
– Florentyna will be the life tenant and her two young children will be the remaindermen of the trust.
– Florentyna will live in the cottage in Newtown and the trustees will invest the cash in quoted shares which will generate annual dividends of £3,000.

Required:
(b) (i) Advise King, with the aid of supporting calculations, of the capital gains tax and immediate inheritance tax implications of the proposed gift of assets into the interest in possession trust on 1 October 2015. (6 marks)