It appears that HMRC have their sights set on Inheritance Tax avoidance by wealthy families. News has broken of a new team inside of HMRC that has been specifically tasked with investigating the use of Family Investment Companies (FICs).
Financial Investment Companies are a bespoke vehicle which can, and often are, be used as an alternative to family trusts. Unlike trusts, FIC’s do not pay IHT upfront on the transfer of funds into these companies. They are private companies whose shareholders tend to be family members of different generations and enable parents to retain control over assets whilst wealth accumulates inside of them. Given that dividends are subject to corporation tax rates and not income tax rates, the long-term decline in corporation tax rates may have been a contributing factor into the popularity of FICs.
The team which was set up in April 2019 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”. It is estimated that more than a trillion pounds worth of assets are held these companies, which HMRC now have their eyes on.
