Japan’s reputation as a major economic power is long established – but now other Far Eastern countries are making the jump from “developing” to “developed”. In particular, the last two decades have seen China evolve from bystander to economic superpower and its growing economic influence has led some commentators to speculate about its longer-term position in the global pecking order. For now, the US remains the economic powerhouse of the world, but China is already viewed as a force to be reckoned with.

The rise of the middle class in China is significant, particularly at a time when the US, Europe and the UK are experiencing a consumer slowdown: demand from affluent consumers in developing nations could provide some support for companies whose established customer base is feeling the pinch. However, soaring food prices are having a negative effect on China’s people, many of whom have become accustomed to a relatively comfortable existence over the last few years. China’s agricultural capacity and processes have not kept pace with its urban and industrial expansion and, although incomes have grown significantly, food prices are now rising faster than wages.

Will China go unchallenged as a global economic force of the future? Perhaps not. For now, China remains the most populous country in the world with 1.3 billion people, closely followed by India, which has a population of 1.1 billion, and whose booming economy has also been the focus of much attention. Looking ahead, the government’s official “one-family, one child” policy is likely to mean that China’s population begins to plateau over the next few decades, while India’s population is expected to increase.

China’s development has influenced almost every area of the global economy. Strong demand from other nations for its cheaply manufactured products has helped the economy expand rapidly; however, this vibrant economic growth has had its downside, and the Chinese government has sought to cool down the country’s export-fuelled growth. Meanwhile, inflation continues to run at very high levels, stoked by surging food prices, and the country’s insatiable appetite for raw materials and oil, driven by the rapid development of its infrastructure and booming demand for its exports, has helped to stoke surging commodity prices. Ultimately, in common with the rest of Asia, China is unlikely to prove immune to the full effects of a US-led slowdown, and this could help to put a brake on China’s growth in the short term.

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Gifting your houseIf your estate is above the inheritance tax threshold, it can seem a good idea to gift away your house to your children now. As long as you survive 7 years from the date you give it, it’s theirs, right? Not exactly. There are a few things you need to bear in mind. First, you will have to pay them a full market rent to live there or it stays inyour estate as a ‘gift with reservation’ – and your children will pay tax on that rent. As it becomes their property, if they become bankrupt, or divorce, it may be sold from under you. And, as a second home, they will be subject to capital gains tax on the price rise when they do sell anyway. Take advice to find a better way.

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No - the IHT threshold didn’t increase to £600,000 as many seem to think. That’s just if you’re married or in a civil partnership.   Divorcees, unmarried parents, co-habitees and carers are among the groups left out in the cold by the recent announcement on inheritance tax. Chancellor Alistair Darling’s announcement meant that millions of couples with homes worth more than £300,000 would be spared the tax. Only 600,000

However, statistics released by the Office of National Statistics last month show that the proportion of married couple families has decreased in the past 10 years from 76 per cent to 71 per cent. There are now more than four million families where the parents are either single parents or cohabiting. If they own a house worth above £300,000, their heirs will potentially face an inheritance tax bill.

Likewise, siblings and carers will still face tax bills if the home they have shared and subsequently inherited is worth more than £300,000. 

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There is a great con going on. The government tells us that only a small proportion of estates suffer inheritance tax. That is true. What it does not tell us is how many estates of people who have not yet died are going to be subject to inheritance tax and that is scary. inheritance tax starts above an estate value of £300,000. Unless a married couple organise themselves properly that is £300,000 per couple. That takes into account your house, your investments, your life insurance, your pension funds (unless you sorted that out properly), all your tax free investments, everything. So although the figures may be a tiny percentage now, this is going to get really serious and a huge proportion of the population will be subject to inheritance tax. Now this tax is really easy to avoid or at least reduce. Just getting your Wills to say something other than “everything to the other” but instead using a discretionary will trust, will save the family £120,000! All you think of is property investments, wring your hands and say what about the capital gains tax (assuming you remember that there was capital gains tax in the first place?) could sell and re-invest in CGT/IHT effective assets. Okay it may be risky but at least you are burying two taxes straightaway. For those with big share portfolios with the same worries again, reinvestment is straightforward that is not to say it is not risky but if you do not do anything you will certainly lose 40% - how much of a risk is that? For those with a high income making regular gifts makes a difference. Even though without a high income but some spare cash use the annual gift allowance and give away £3,000 (plus £3,000 for last year if he did not do it). Just do not let inertia in the government’s big con – the headline rate of historic estates - let your family suffer a tax charge of 40% on anything over

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Under new HMRC proposals, the thresholds at which chargeable lifetime transfers (“CLTs”) will need to be reported will be raised to £210,000 and £255,000.* Previously, the limits for the existing two tests were £10,000 for CLTs made in any one year and £40,000 for CLTs made over a ten-year period. HMRC’s proposals should mean that far fewer CLTs will need to be reported.  Great news for those advising clientsUnder these changes, the £210,000 threshold will also generally be applied to most trusts to determine whether a report is required at the ten year anniversary.HMRC is also proposing an additional third test against which the reporting thresholds would be measured. This test will be based on the value of the assets to be transferred.For example, consider someone who invests £300,000 in a discounted gift scheme. Given their age, withdrawals selected, sex and state of health, the retained rights (or discount) are valued at £120,000. The “before” value is £300,000; the loss to the estate is £180,000. The transfer would therefore need to be reported as under the new test, the value of the assets to be transferred, that is, £300,000 has exceeded the threshold of £210,000.In addition, HMRC proposes to reduce the cumulation period for reporting purposes from ten years to seven years. This will bring it into line with the seven-year period for calculating IHT on previous gifts, thereby introducing consistency and simplifying administration for advisers. HMRC have confirmed that the proposals are intended to apply with effect from 6th April 2007, subject to successful passage through Parliament later this year.Full details are at http://www.hmrc.gov.uk/cto/etes.htm. ·         The limit of £210,000 is 70% of the nil rate band (£300,000 in 2007/08) and the limit of £255,000 is 85% of the nil rate band. These limits will increase with the nil rate band accordingly. Both are rounded up to the nearest £5,000.

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From 1 June 2007, HMRC rules mean that anyone setting up a discounted gift trust for Inheritance Tax avoidance needs to take care over “medical underwriting”.  It’s always been a matter of debate as to whether or not the “discount” is something a life office can decide, or whether it’s a matter of fact.  The new rules are clear - get medical evidence at the outset to prove the health of the settlor. Don’t try Inheritance Tax planning on the cheap!

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