Financial Monitor (April 2006)
Quote of the month
"Leadership is going where no-one else has gone".
Inheritance Tax - Charges and Trusts
The Chancellor, Gordon Brown, has revised his proposed Budget measures in respect of trusts, following protests by the life assurance industry and MPs, amongst others.
H M Revenue and Customs have published additional guidance with the draft Finance Bill, which states that there will be no 'retrospective tax charges' to trusts. What the guidance fails to explain is that there will be new tax charges to certain existing trusts if the terms of the trust are not changed.
All future as well as existing bare trusts are not affected by the changes. An example of a bare trust would be a life insurance policy set up to pay off a mortgage if a person dies, and this remains outside the new rules.
The Finance Bill sets out the details of how the rules for Accumulation and Maintenance (A&M) Trusts and Interest in Possession (IIP) Trusts announced in the Budget, will be applied. Lifetime transfers into accumulation and maintenance trusts or interest in possession trusts have always been exempt from inheritance tax (IHT) if the settlor lives for the next seven years. These trusts have also not been subject to the periodic or exit charges suffered by other trusts. Legislation has been proposed to make these types of trust immediately chargeable to IHT.
The new rules will apply from 22 March 2006 to new trusts and to additions of new assets to existing trusts. There are transitional provisions, which will apply to existing trusts in the period up to 6 April 2008.
The new rules will apply the provisions currently relating to discretionary trusts to both A&M and IIP trusts. So there will be:
- a chargeable transfer on entry with a lifetime rate of 20%;
- a periodic charge of up to 6% every ten years; and
- an exit charge when funds leave the trust between periodic charges.
There will be some limited exceptions to the new rules, primarily trusts created for disabled persons and those established purely for charitable purposes.
Existing A&M trusts which provide that the assets in trust will go to a beneficiary absolutely at 18, or where the terms on which they are held are modified before 6 April 2008 to provide this, then the current IHT treatment will continue. Where the entitlement rules are different, the trust assets will become 'relevant property' from 6 April 2008 and the periodic and exit charges will apply. For many entrusting assets to children at age 18 will be unacceptable and hence it will not be possible to avoid the IHT.
The current rules for existing IIP trusts will run on until the interest in the trust property at 22 March 2006 comes to an end. Any subsequent trust will broadly fall to be assessed to the periodic and exit charges.
Where a trust is set up by a will, then the trustees will have two years to alter the terms of the trust to comply with the new rules. In this period any changes they make will be treated as if made in the will itself.
A few sales myths.
You need a sharp suit and a firm handshake. First impressions may count, but the truth is, there is no correlation between physical appearance and sales achievement. Indeed, many top sellers totally contradict this stereotype. Instead, what links these top performers is that they are highly skilled, professional and know how to deal with people.
You need to have the 'gift of the gab'. This is somehow seen as key to talking the buyer into doing or thinking something different. In fact, the most successful sales people have far less 'airtime' than the customer in a sales conversation. Their true skill lies in getting the other party talking and thinking, by asking lots of questions and listening to the answers, in order to unearth concerns and needs.
You need to be an extrovert. There's no link between personality traits and success at selling. Extroverts may be inherently more comfortable, say, in a cold-call situation. On the other hand, an introvert may be better at listening, and not have the tendency to interrupt and present solutions too early in the buying process. Natural extroverts and introverts can both succeed, provided they understand and are willing to adopt the right behaviours throughout complex negotiations. Much depends on the personality of the buyer.
You face never-ending sales opportunities. Natural optimism aside, this myth betrays a fundamental misunderstanding of the need to target your sales effort effectively. This means identifying those prospects sufficiently attractive to you and those for whom you have a realistic opportunity to put together a proposition. Don't 'spray and pray' - it's a waste of time and effort to focus on those whom you have little or no chance of converting.
The prospect hasn't called back, so they aren't interested. Research indicates that around three quarters of buyers say no up to five times before buying, yet 92% of sellers give up after the first 'no'. Not surprisingly, the remaining 8% of 'dogged' sellers win 75% of sales. So persistence pays. Initial buyer negativity is often because, at the time of the initial contact, they may not have identified a need or may be dealing with more important issues. By staying in touch, you can influence their thinking so that they begin to see the related issues as more important. Equally, by keeping your name in front of them, you are more likely to be 'in the frame' when they come to consider a solution.
People don't like salesmen. The view that sales people generally are not 'nice to know' or, even worse, 'con artists' is the kind of superficial stereotyping that results from a few extreme examples of the breed. Selling is a highly professional occupation, and the skills needed to succeed are strategic, behavioural rather than intuitive, well-researched and, critically, can be developed. By identifying where the customer is in their thinking, helping them develop that thinking into a defined need and providing the appropriate solution, it is possible to convert any contact with the customer into a sales opportunity
New rates of statutory maternity pay and sick pay
From April 2006 the standard rate of statutory maternity, paternity and adoption pay rose from £106 to £108.85 per week; the standard rate of statutory sick pay from £68.20 to £70.05 and the earnings threshold for these payments from £82 to £84 per week.
VAT Registration on-line
All businesses will need to file their VAT returns on line by 2012 but for those wishing to do so it is possible to file online now. To register you need to visit the Customs website at www.hmrc.gov.uk and follow the links for VAT online. It is an easy process to follow but if you have any problems there is a Help Desk on 0845 010 8500.
End of year payroll returns
Forms P35 for 2005/06 must be with the Revenue by 19 May 2006 to avoid penalties of £100 per month (or part thereof) per 50 employees. All employees must be issued with a P60 for 2005/06 by 31 May 2006.
If you have not yet paid all your PAYE tax and national insurance for the year ended 5 April 2006 interest will now be accruing on the outstanding liability.
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