HMRC has confirmed that its Family Investment Companies Unit has now completed its work and will be subsumed into HMRC's Wealthy and Mid-sized Business Compliance directorate. In a report to the Wealthy External Stakeholders Forum, HMRC explained that FICs are now regarded as being ‘business as usual’, rather than needing a dedicated team.
The FIC Unit was formed in April 2019 to aid HMRC’s understanding of FICs and their associated tax risks. According to HMRC’s research: ‘the average assets [held by FICs] amounted to around £5m, leading HMRC to conclude that FICS are mainly used by wealthy people. In compliance terms, wealthy people are defined as having an annual income exceeding £200,000, or those with wealth of more than £2m. Further analysis showed that FICs are not a vehicle often used by the extremely wealthy, who tend to use family offices to manage their wealth. The age of individuals setting up a FIC varies but most tend to be 50+ and the majority of people setting them up are male.’
Importantly, HMRC says ‘there was no evidence to suggest that there was a correlation between those who establish a FIC structure and non-compliant behaviours.’ The key tax risks associated with FICs are said to be (a) their use as be a planning strategy, ‘often with the primary objective generational wealth transfer and mitigation of inheritance tax’; and (b) the diversity in the way that a FIC is structured and managed, which creates ‘tax risks and compliance activity across a variety of tax regimes, including inheritance tax, capital gains tax, stamp duty land tax and corporation tax’.
As Thomas Denny, associate at Charles Russell Speechleys, noted: ‘HMRC would not confirm whether they are seeking to introduce specific FIC legislation, and so we cannot rule out the introduction of targeted legislation or anti-avoidance measures in the future’.
Nimesh Shah, CEO of advisory firm Blick Rothenberg, questioned the need for HMRC’s FIC Unit in the first place. ‘HMRC has wasted huge amounts of time and money on an area which didn’t merit such attention’, Shah said. ‘The review could have been shortened had HMRC engaged early with stakeholders, and then focused their efforts on the continued fight against aggressive tax avoidance schemes and evasion.’
‘It is an example of where a fairly benign use of companies has come under more scrutiny than needed. HMRC needs to do better in the future on working collaboratively with professional bodies and firms to resolve any perceived concerns,’ he added.
HMRC has confirmed that its Family Investment Companies Unit has now completed its work and will be subsumed into HMRC's Wealthy and Mid-sized Business Compliance directorate. In a report to the Wealthy External Stakeholders Forum, HMRC explained that FICs are now regarded as being ‘business as usual’, rather than needing a dedicated team.
The FIC Unit was formed in April 2019 to aid HMRC’s understanding of FICs and their associated tax risks. According to HMRC’s research: ‘the average assets [held by FICs] amounted to around £5m, leading HMRC to conclude that FICS are mainly used by wealthy people. In compliance terms, wealthy people are defined as having an annual income exceeding £200,000, or those with wealth of more than £2m. Further analysis showed that FICs are not a vehicle often used by the extremely wealthy, who tend to use family offices to manage their wealth. The age of individuals setting up a FIC varies but most tend to be 50+ and the majority of people setting them up are male.’
Importantly, HMRC says ‘there was no evidence to suggest that there was a correlation between those who establish a FIC structure and non-compliant behaviours.’ The key tax risks associated with FICs are said to be (a) their use as be a planning strategy, ‘often with the primary objective generational wealth transfer and mitigation of inheritance tax’; and (b) the diversity in the way that a FIC is structured and managed, which creates ‘tax risks and compliance activity across a variety of tax regimes, including inheritance tax, capital gains tax, stamp duty land tax and corporation tax’.
As Thomas Denny, associate at Charles Russell Speechleys, noted: ‘HMRC would not confirm whether they are seeking to introduce specific FIC legislation, and so we cannot rule out the introduction of targeted legislation or anti-avoidance measures in the future’.
Nimesh Shah, CEO of advisory firm Blick Rothenberg, questioned the need for HMRC’s FIC Unit in the first place. ‘HMRC has wasted huge amounts of time and money on an area which didn’t merit such attention’, Shah said. ‘The review could have been shortened had HMRC engaged early with stakeholders, and then focused their efforts on the continued fight against aggressive tax avoidance schemes and evasion.’
‘It is an example of where a fairly benign use of companies has come under more scrutiny than needed. HMRC needs to do better in the future on working collaboratively with professional bodies and firms to resolve any perceived concerns,’ he added.
