(c) Explain the capital gains tax (CGT) and income tax (IT) issues Paul and Sharon should consider in deciding

which form. of trust to set up for Gisella and Gavin. You are not required to consider inheritance tax (IHT) or

stamp duty land tax (SDLT) issues. (10 marks)

You should assume that the tax rates and allowances for the tax year 2005/06 apply throughout this question.

(c) As the trust is created in the settlors’ (Paul and Sharon’s) lifetime its creation will constitute a chargeable disposal for capitalgains tax. Also, as the settlors and trustees are connected persons, the disposal will be deemed to be at market value,