Wealth Transfer and Trust Taxation

SECTION B: ADVISORY REPORT 1 This question is worth 25 marks. You are a tax advisor. Your client, Arthur (aged 75), owns 'The Blackwood Estate', a 500-acre working farm in the UK. Arthur is planning his estate and wishes to transfer wealth to his family while minimizing tax liabilities. Exhibit 1: Transfer of the Farm Arthur intends to gift the entire farming business, including the land, farm buildings, and machinery, to his daughter, Beatrice. Arthur has owned and actively farmed the land for 30 years. The current market value of the farm is £4.2 million, with an original cost of £800,000. Exhibit 2: Discretionary Trust Arthur also owns a portfolio of residential investment properties valued at £1.5 million (original cost £900,000). He wishes to transfer these properties into a Discretionary Trust for the benefit of his four grandchildren. Arthur has not made any previous lifetime transfers. Requirements: Prepare a memorandum for Arthur which: (a) Advises on the Inheritance Tax (IHT) and Capital Gains Tax (CGT) implications of gifting the farm to Beatrice, specifically detailing the availability of Agricultural Property Relief (APR), Business Property Relief (BPR), and CGT Gift Hold-Over Relief. (15 marks) (b) Explains the immediate IHT and CGT consequences of transferring the residential investment properties into the Discretionary Trust, and outlines any ongoing IHT charges (principal and exit charges) the trust may face. (10 marks)