In April 2019 HMRC revealed the existence of a new unit which was created for the sole intention to investigate high net worth families in the UK. This new unit sits inside Wealthy and Mid-sized Business Compliance (WMBC) and is tasked to reduce high net worth families exploiting family investment companies to avoid inheritance tax.
What is a Family Investment Company?
Essentially, a FIC is a private limited company which is usually set up by parents as a vehicle to manage or invest their family wealth. The FIC will have unique articles that set out the rights and interests of each of the members and assign them share classes. This enables family members to have differing levels of control over company decisions and rights to receive dividends.
What is the Family Investment Companies Unit?
If a FIC has a combined asset total of more than $1 trillion, then it would be firmly in the sights of HMRC’s new Unit. The Unit identified that many FICs were simply being used to bypass the many anti-avoidance rules placed in recent years on trusts, which were once a very popular tax-avoidance tool.
In an attempt to maximise their revenues from the UK’s richest families, HMRC set up this team in April last year due to the growing concerns that the ultra rich were avoiding paying tax through an extensive network of legal loopholes.
How do FIC’s avoid Tax?
Many FIC’s are being used as inheritance vehicles to hold assets, bonds and stocks, which would pay out dividends periodically subject to corporation tax. Importantly, these dividends would not be taxed as personal income, benefiting from the lower rates of corporation tax (assuming the shareholder are higher rate tax payers). This would allow parents to bring their children into the FIC as shareholders, thus reducing inheritance tax in some circumstances.
An HMRC spokesperson stated that:
“The Family Investment Company team was established to look at FICs and do a quantitative and qualitative review into any tax risks associated with them with a focus on inheritance tax implications. The team’s work is exploratory at this stage and as such, we would not like to share any more details”.
Why use a FIC?
Aside from the clear tax benefits, the bespoke nature of FICs allow for greater control over assets and investment strategy than outsourcing the role to investment managers and private banks. Thus allowing parents to exert control over their children’s finances.
Expert London Tax Investigation Lawyers
We can help you at every stage of any HMRC Investigation. Our legal team has first-hand experience and knowledge of how HMRC works at every level, in particular in relation to their legal and complaints teams.
We have a track record of successfully challenging HMRC decisions and will assist you and appoint forensic support where necessary to provide expert reports. Unlike accountant tax advisers we analyse the merits at the outset and keep them under review and we won’t have to hand over all your confidential data as lawyers have legal advice privilege unlike accountants.
Our specialist Tax Solicitors and Barristers deliver expert technical knowledge, strong negotiation skills and advice which can make a pronounced difference to eventual tax penalties, charges and liability.
We provide tax advice and representation against HMRC. Get in touch with our expert tax solicitors and barristers so we can get you a result. We provide a quick no cost initial telephone case review to establish whether or not we can help you; just call one of our team on 02071830529.
Want legal advice from Tax Solicitors on your case?
Our simple enquiry form goes immediately to our tax litigators in Middle Temple, London. Call us on +442071830529 from 9am-6pm.