Nothing to see here

HMRC has announced it has closed down the specialist team established to review the use of Family Investment Companies (aka FICs) in 2019. 

The team had been established as HMRC noticed the increased use of FICs by wealthy individuals to mitigate their inheritance tax and pass wealth down the generations. HMRC wanted to investigate how FICs were being used with a view to ensuring there was no tax avoidance associated with their use.

The team undertook a detailed review of several FICs and their associated trusts and shareholders to ensure there was no non-compliance.

The conclusion of the two year investigation was:

“In the research we undertook there was no evidence to suggest that there was a correlation between those who establish a FIC structure and non-compliant behaviours. As with any analysis of a taxpaying population, the same broad range of tax-compliance behaviours were observed, with no evidence to suggest those using FICs were more inclined towards avoidance.”

Following this conclusion, HMRC have closed down the specialist team and regard FICs as “business as usual” for the Wealthy and Mid-sized Business Compliance team (WMBC).

This is obviously a very welcome development and should give clients confidence that a FIC is a suitable vehicle to manage the succession of wealth.

However, as always specialist advice is recommended if you plan to establish a FIC. HMRC noted:

“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 Inheritance Tax, Capital Gains Tax, Stamp Duty Land Tax and Corporation Tax.”

This observation is a useful reminder that there is still a host of anti-avoidance and targeted legislation that can catch the unwary out.  Not all FICs are the same and I suspect we will still see some challenges by HMRC for those structures that push the boundaries just a little too far.