UK Inheritance Tax Part 2

Example of IHT Planning
A settlor creates a Discounted Gift Trust for GBP500,000 at 65, and takes a series of interests at 5% per annum. They die after eight years and the capital remains in trust for their son who then passes away in year 12. Assuming the fund is worth GBP640,000 at this time and the beneficiary’s other assets exceed the NRB, the total IHT would be as follows:
Old Regulations - IHT on initial transfer and during trust period = Nil - On death of the of the Beneficiary:GBP640,000 x 40% = GBP256,000	New Regulations Assumes NRB increases by 2.5% per annum and the value at 10 years =GBP610,000. Therefore:IHT on initial transfer = Nil as the discountedvalue of the transfer is below the NRB Ten Year Charge = GBP14,712 Exit Charge assuming trust wound up on the death of the son = GBP2,848
So, under the new regulations the total IHT bill for the family is reduced by GBP238,440

With the new regulations it is vital for people to understand that when a beneficiary passes away the trust fund will no longer form part of an estate for IHT. This means that some people will be actually better off. Despite this, there will be people who wish to avoid the new rules. This may be because:
- they wish to invest a lot more that the NRB and do not want to receive a 20% entry charge
- they do not want, for whatever reason, periodic and exit charges
- the most important things are reduction in taxes with access thereby showing that flexibility over beneficiaries is not the most important thing
- they want to keep things easily understandable
If any of the above applies then the way to go could well be the bare trust versions of the main plans. The main advantages are:
- No chargeable transfer
- No requirement to complete IHT100
- No periodic/exit charges
- Will not affect taxation of any flexible trusts that have been created
- Simplicity
- Chargeable events on a beneficiary who is over 18 years old
The main disadvantage of all this is that when you have chosen who the beneficiaries are then you cannot change them at any time in the future. However, it has to be said that most people do not mind this. The plans can prevent beneficiaries winding up the policies and thereby stopping what the settlors' want whilst they are still alive.
So, it can be seen that it is better to do something than do nothing and the main benefits of insured schemes, i.e. estate reduction with access to capital, are still available. Also, clients have options. They can either have flexibility over beneficiaries and pay some tax or no flexibility and potentially pay no tax.
Without doubt, the planning of IHT has got a lot more complicated. It requires advice for qualified advisors with a complete understanding of a client's gifting history, requirements and how it will impact any future planning.
More than anything, the most important thing to do is to write a Last Will & Testament (LWT). The new Finance Act 2006 could have serious implications for those who ignore the possible implications of the new regulations.
Some LWTs will need only a few changes, many will require no changes at all. However, there will be plenty that need massive re-planning. This especially applies to expats. So, how have things changed? The basics of it all is that, in future, most trusts - whether made by LWT or a lifetime transfer into a trust - will now be subject to the same IHT rules that have applied to discretionary trusts for years.
There is now the potential for a charge to inheritance tax when:
- the trust is created
- every ten years of its lifetime
- when the assets leave the trust
The whole point of this was to plug the loopholes and prevent any legitimate and legal tax avoidance. It is a must that LWTs need to be reviewed if they contain gifts to children or create what are known as Interest in Possession trusts where there is an income beneficiary. It must be emphasized though that the changes will not affect the actual provisions of the LWT, only the way they are taxed. So, the only real difference is that the heirs could receive a substantially smaller amount than had been originally intended because it has fallen within the reach of HMRC.
To be continued…

The above data and research was compiled from sources believed to be reliable. However, neither MBMG International Ltd nor its officers can accept any liability for any errors or omissions in the above article nor bear any responsibility for any losses achieved as a result of any actions taken or not taken as a consequence of reading the above article. For more information please contact Graham Macdonald on [email protected]@mbmg-international.com

Snap Shots: by Harry Flashman

Learning to master ‘manual’

Photography is still, despite the digital revolution, all about handling the variables involved in producing an image. And by handling all the variables yourself, you have total control over how that image turns out. And that entails mastering the M or Manual mode.
Now there are people who say that this is not necessary. Today’s cameras are smarter than we are, etc etc etc. You can twirl a knob, or select from a pull-down menu, the “portrait” mode or the “action” mode, and let the camera do the rest. That is all very fine, but you will get the portrait, or the action, that the camera ‘thinks’ is right. Not what you necessarily want, and there’s a big difference.
Improving your photography is not really all that difficult, and you don’t even need to go to school. There are many world class famous photographers who never had a lesson in their lives. But they did read, and they did experiment, and they did learn from their own work.
There are really only two main variables, and after you understand them and what they do to your photograph it becomes very simple.
The first thing to remember is that the correct exposure is merely a function of how large is the opening of the lens and how much time the shutter is left open to let the light strike the film. That’s almost it - that is photography in a nutshell. No gimmicks or fancy numbers - a straight out relationship - how open and for how long - this is known as the “Exposure”.
Now I will presume, for the sake of this exercise that you have an SLR and use it in the automatic, or “Programme” mode. Let’s go straight to the “mode” menu and look up “A” or “Aperture Priority”. In this mode it means that you can choose the aperture yourself, and the camera will work out the shutter speed that corresponds to the correct exposure. Simple.
So let’s play with this facility to give you some better pictures. Select “A” and then look at the lens barrel and you will see the Aperture numbers, generally between 2.8 and 22. To give you a subject with sharp focus in the foreground and a gently blurred background, you need to select an aperture around f2.8 to f4. Hey! It was that simple. To get those “professional” portrait shots, with the model’s face clear and the background all wishy washy, just use the A mode and select an Aperture around f4 to f 2.8.
Now, if on the other hand you want everything to be nice and sharp, all the way from the front to the back, like in a landscape picture, then again select A and set the lens barrel aperture on f16 to f22. The camera will again do the rest for you. Again - it’s that easy!
Flushed with creative success, let’s carry on. The next mode to try is the “S” setting. In this one, you set the shutter speed and the camera automatically selects the correct aperture to suit. Take a look at the shutter speed dial or indicator and you will see a series of numbers that represent fractions of a second.
First, let’s “stop the action” by using a fast shutter speed. For most action shots, select S and set the shutter speed on around 1/500th to 1/1000th and you will get a shot where you have stopped the runner in mid stride, or the car half way through the corner or the person bungee jumping. Yes, it’s that easy.
So this week you have learned that to get a good portrait shot use the A mode and set the aperture on f4 to f2.8 and forget about the rest of the technical stuff. Just compose a nice photograph and go from there. (Do remember to walk in close however!) To get a great landscape shot, again use the A mode and set the aperture at f16 to f22.
Finally, to stop the action, choose the S mode and around 1/500th of a second and you won’t get blurry action shots ever again.
Certainly there are other aspects to good photography, but master the A and S modes and you will produce better pictures.

Modern Medicine: by Dr. Iain Corness, Consultant

Keeping in contact

A good friend rang me to ask where he could go to get measured for contact lenses. After discussing this a little further it turned out that he used to wear the ‘hard’ style contact lens many years ago, but was not conversant with the newer style of soft, permeable lenses.
However, it isn’t just a case of bunging some in and forget about it. Quite the reverse. With all our organs that can go wrong, go wrong, go wrong, did you know that eye problems are some of the commonest reasons for a doctor visit? And for those of you who wear contact lenses (like me) there are even more eye problems for us to get, despite the common use of contact lenses these days.
What has to be remembered is the fact that a contact lens is a foreign body in the eye. The “skill” in manufacturing the contact lens is in making it so smooth that the eyeball doesn’t really realise there is a foreign body there at all.
There are various types of contact lens, the old hard ones were made of a material called polymethylmethacrylate (PMMA) which is rigid and doesn’t let oxygen through, but the newer ones have a material called siloxane which is gas permeable. These hard lenses are the most trouble free, although the most difficult to look after. Sounds topsy-turvy, I know.
The second type of lens is the soft contact lens, of which there is a “permanent” style and a disposable type. These are made of hydroxymethylmethacrylate (HEMA) which contains between 30-60 percent water and are gas permeable. However, soft disposable lenses give the most problems, but are the easiest to look after, in direct contrast with the hard lenses. Again sounds weird, I know.
The commonest problems with all contact lenses is infection, and since the lens is a foreign body, there is a good reason to get an infection immediately. For those of you who leave your lenses in overnight, you have an increased risk of infection by a factor of 10. Take them out every night, you have been warned!
Infection is not to be thought of as something that just happens and when it does you just pop in a few eye drops and get better automatically. Bacterial infection can be sight threatening and the cornea (the clear bit in the centre that you look through) can be destroyed in 24 to 48 hours. There is also a parasite that can get into the eye of contact lens users who have rinsed their lens with contaminated water, or who have worn their lenses swimming in contaminated water.
One very common problem is “losing” the lens in the eye, both the hard and soft types. The most important thing to remember is not to panic. The lens cannot go “behind” the eye. It just rolls itself up under the lid. Try to avoid rubbing and it will reappear in an hour or so.
The other very common problem is eye irritation. This is caused by material under the lens or damage to the lens itself, such as splitting or tearing. If you take out the lens and you find it breaking up, do not put it back in - you run the risk of damaging the cornea. If you are like me and you wear your “two week” contacts until they fall apart - remember you are running a risk!
Lens care is the most important feature and you should always wash your hands before removal or insertion. The lens container should be scrupulously clean and the storage/cleaning fluid should be fresh, and never use water.
Look after your lenses, take them out at night, change them frequently and remove them immediately if there is any irritation or redness. “See” you next week!

Learn to Live to Learn: with Andrew Watson

Resolution

Well, that was quite a holiday. I mean, it's not like I've been lying in my hammock for the past eight weeks. Actually, I've been busy as a bee, so much so that it is with a sense of some concern that I glance at the calendar and see that January is already long gone. Nonetheless, it is never too late to wish you all a happy and successful new year, especially as there's another one upon us. Indeed, it's a funny thing, but there always seems to be some or other culture's New Year, around the next corner. Personally, I pay particular attention to the Jewish New Year (Rosh Hashanah - it's now the year 5767), the Western New Year, the Thai New Year, (it's going to be 2550) and the Chinese New Year, which is always a magnificent celebration, wherever in the world you happen to be.

The schools of football have bigger goals.
As a Londoner, I was fortunate that from an early age I was able to visit Chinatown and throw a few firecrackers with everybody else. Chinese culture, embodied through its traditions, ritual, symbols and heroes becomes a fusion of colour, pageantry, mysticism and noise; a tremendous cultural celebration. As for the 'West', I watched 'highlights' of some of the firework displays from around the world. Ever since the Millennium Olympics in 2000, the Sydney Harbour Bridge, with all its monumental extravagance, seems to have become an almost iconic entrée into a New Year. London pushed her close this time.
When I watch these pyrotechnic parties I am struck by three things. First, they look and sound great. Fireworks are a tremendous invention; thank you China. Second, I consider how much they cost; figures are released suggesting that London's cost over 1 million pounds and Sydney's cost 4 million Australian dollars. Then thirdly, I think to myself, "Is there seriously no better use to which this money could have been put?"

Little people play a part in a bigger picture.

Defenders of the displays might argue that they are a manifestation of democracy; a public display for the people, by the people; "It's what they want, you know" I am told. An interesting view and it's true, I admit, that there is a wonderful feeling of egalité, liberté and fraternité created by an explosion of colour in the sky. However, whether they are 'democratic' in the true sense of the word is less certain and a different matter. In a city of eight million people, such as London, I suggest that you could count the percentage points of people in the city who either actually want to see the fireworks or get to see the fireworks, on the fingers of one hand. I should be careful; being critical of firework displays is a dangerous game; you'll just get labelled a "killjoy", although I should stress, I'm not against them per se. I just find myself wondering what the world's priorities are? "Anyway," the firework fans say, "What else would you do with the money?"

We're all ears; hearts and minds, too.

Now that is a good question. One of the things I have been 'busying' myself with during my sabbatical from "Learn to Live to Learn" has been a project which by its selfless defence of the defenceless, has inspired me to do more. It's a charity called, "The Esther Benjamins Trust" and it's as brave as it is beautiful. The charity rescues enslaved, trafficked, abused children from circuses in India and creates safe havens, after care and education for them in Nepal, from whence the majority of them have been taken in the first place. Where there is misery, they bring hope. But why Nepal, you might ask? What's it got to do with Thailand? What's it got to do with us? What's it got to do with me?

Welcome to the school of fun.

I'm the first to recognise that there are many worthy causes. As an aficionado of the International Baccalaureate Organisation, their mission and their programmes, it has always been my view that it is a good idea to act and think locally, regionally and globally. The central CAS (creativity action service) component of the IB diploma programme encourages students to do just that. In thinking, planning and acting both within and beyond their immediate cultural or national identities, it is very difficult for students not to arrive at an understanding of the increasing interdependence of people around the world. (It might be easy to slip into platitudes here, so I'll try my best not to.)

Gabrielle, the Brazilian.

It could equally be argued that it is not so much a matter of interdependence between peoples as the continued dependence of the vulnerable on the powerful, which characterises the reality of the human condition today. But if we choose to aspire to a world characterised by interdependence, equality and social justice, then we must first work to alleviate the condition of dependence.
In Nepal, where literacy is low and poverty is high, agents of inhumanity plunder a perfect picking ground. Families are promised 2 dollars a day - double what most families earn - if their daughter goes to work in a circus. Rarely, following a derisory initial payment, does any money ever arrive. In reality, the children are sold - trafficked - into slavery. They are usually aged between 6 and 10 years old. Those fortunate few who have already been rescued tell horrifying tales of sexual, physical and psychological abuse. If the situation on the ground is despicable for children, it's also terribly dangerous for the people who risk their lives to rescue them. One activist recently suffered a fractured leg and serious head injuries after being hit by iron rods by circus thugs, whilst government officials and police looked on. You have to be courageous to care.
The more I learn about the Esther Benjamins Trust, the more I am determined to follow their example. Here in Thailand, literally on the ground, every week, students of all ages are congregating in the tens (soon to be hundreds) to contribute to the charity. The St Andrews School of Football (mainly primary students) and the Garden School of Football (for students aged 8-18) meet every Saturday morning at their respective schools between 8 a.m. and 10 a.m., where they are coached in conjunction with the English FA award scheme. The proceeds from their fees are transferred directly to the Esther Benjamins Trust. In April, we hope to take a group of IB students to Nepal, to follow through this 'good work' on the ground. It's an inspiring story, in which you can play a real part. The next sessions begin on Saturday March 3rd.
One of my many New Year resolutions was, "Do something real" to help. The needs of trafficked children after all, are far, far greater than mine will ever be and perhaps when they are all rescued, then I'll send fireworks into the night sky.
Andrew Watson is a Management Consultant for Garden International Schools in Thailand. andreww@gar denrayong.com
All proceeds from this column are donated to the Esther Benjamins Trust. www.ebtrust.org.uk email: [email protected]
Next week: Implementing the IBO mission statement