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Business as usual for Family Investment Companies HMRC taskforce concludes

Private Client Partner Lucy Eldridge provides an update following HMRC’s recent investigation into the use of Family Investment Companies.

An HM Revenue & Customs (HMRC) taskforce which was set up in April 2019 to investigate the use of Family Investment Companies (FICs) has been subsumed into the wider wealthy team and they are now looked at as ‘business as usual’ rather than being a dedicated team.

Since 2006, when there were significant changes to the Inheritance Tax (IHT) rules for trusts, FICs have become increasingly popular and, with their growing popularity, came the increased speculation that the tax rules associated with them would be reviewed and amended. It became clear that FICs were on HMRC’s radar when it set up a taskforce in April 2019 to investigate their use. Since then, the team have been collating information on the common characteristics of FICs and the profile of individuals who set them up (in particular, whether there was a correlation between those who operate FICs and non-compliant behaviours).

The taskforce did accept that there were sometimes commercial reasons for using a FIC.

The taskforce has now concluded its review and found that the use of FICs appears to be a planning strategy, often with the primary objective of generational wealth transfer and mitigation of IHT. However, the taskforce did accept that there were sometimes commercial reasons for using a FIC. It also found that there is some diversity in the way that a FIC is structured and managed, creating tax risks and compliance activity across a variety of tax regimes including Capital Gains Tax, Stamp Duty Land Tax and Corporation Tax; not just IHT.

While HMRC have confirmed that there is no longer a dedicated team focussing on FICs, the introduction of specific FIC legislation now or in the future cannot be ruled out. It would be relatively easy to reintroduce a higher rate of Corporation Tax for investment companies, for example.

Would you like to know more?

If you have any questions regarding the use of a Family Investment Company and the impact on your tax position, please get in touch with your usual Blick Rothenberg contact or Lucy Eldridge using the details on this page.

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