By Jessica Fazzone, Tax, Trusts and Estates associate at Irwin Mitchell
A family investment company (FIC) is a tax efficient vehicle to manage the transfer of wealth to the next generations. The use of FICs has become more popular than trusts which have traditionally been used for asset protection and succession planning.
It should therefore come as no surprise that HMRC decided to investigate the use of FICs. In April 2019, HMRC set up a specialist unit to understand the characteristics of a FIC and to investigate any tax risks associated with the use of FICs.
HMRC’s research found that FICs are often set up by wealthy people (individuals with a wealth of more than £2 million) whilst the extremely wealthy tend to use family offices instead. They also found that the majority of individuals setting up FICs are over 50 and male.
Following their investigation, HMRC has now closed down its specialist unit after finding that there was no link between the use of FICs and any non-compliant behaviours. Their key tax risk findings can be summarised as follows:
- FICs are often used for generational wealth transfer and to mitigate Inheritance Tax.
- The way FICs are structured and managed can be diverse - creating tax risks across a number of tax regimes such as Inheritance Tax, Capital Gains Tax, Stamp Duty Land Tax and Corporation Tax).
Finally, HMRC concluded that the use of a FIC does not suggest that those using them are acting in a non-compliant manner in relation to their tax affairs. Therefore, FICs should now be looked at as ‘business as usual’. This is good news for taxpayers who have already set up a FIC or are seeking to do so. FICs continue to be tax-efficient vehicles for wealth transfer and it is likely that they will continue to grow in popularity especially for asset protection and IHT purposes.
We continue to regularly advise clients on the creation and re-structuring of FICs and as tax advisers, we too will continue business as usual.
The team’s research concluded that people use FICs as a “planning strategy, often with the primary objective of generational wealth transfer and mitigation of inheritance tax”, the minutes said.